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The Federal Reserve can do a few things to prohibit inflation. First, they should not print any more money. In other words, there should be no more quantitative easing. This will also make banks much more responsible.Second, they could gradually increase the interest rates. This will make the dollar stronger, which is the opposite of inflation.
I agree with the other editors. One of the worst things that could happen now would be for the Fed to remove itself completely from this situation. As it has now committed to supporting and helping the economic situation, what it needs to do as a result is to slowly and gradually remove that support, announcing its intentions so that everybody can act in response to this.
The Fed needs to remove itself from the market and focus on the currency as an economic indicator. As #2 says, the economy needs to gain strength, and that won't happen with the Fed intruding into everything, printing money without backing, and saving failed businesses. When the market adjusts to the Fed's intrusion, the Fed pushes further, forcing the market to become dependent. If the Fed or the Fed-backed dollar were to suddenly collapse, there would be literally nothing left for the market to support itself.
The best way for this to happen would not be in the Fed's control. If economic growth would become stronger, the Fed would be able to pull away from its quantitative easing policy without harming the economy. Outside of that, the best thing the Fed could do would be to pull back slowly and in a way that is announced beforehand so people and firms have a chance to plan for the changes.
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