The bottom line is that we are experiencing a false, inflation-driven recovery. When it is finally unable to ignore the signs of inflation any longer,the Fed will raise interest rates and terminate QE2 (scheduled to end this month). At that point the economy will begin to stagnate like the Japanese economy of the 1990s and we will face a protracted period of extremely slow growth and high unemployment.
Alternatively Salerno notes that the Fed could merely keep the inflation going, which would be much worse. As he says, "If the Fed persists in its inflationary policy then it will usher in galloping inflation like the U.S. experienced in the 1970s combined with high unemployment–and I do not think that price and wage controls will be too far behind."