Consequently, the Fed's next challenge will be deciding when to shift its focus to fighting inflation, and consumers might have to get used to the fact that inflation could become a "way of life," he added.

Honeig acknowledged that the U.S. economy was facing a difficult set of circumstances, with prospects for a slow recovery. However, with financial markets beginning to show some signs of recovery, he argued that as the credit crisis eased, falling housing costs and persisting high oil prices would continue.

He also noted that the Fed's current monetary policy stance was accommodative, and pointed out that the policy acted with a lagging effect.

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