In an attempt to kick start the sputtering US economic recovery, the Fed has begun pumping hundreds of billions of new dollars into the financial system. The move may build inflation expectations, but job creation is a tougher nut to crack.

The US Federal Reserve is the only central bank in the world that operates under the dual mandate of maintaining both price stability and full employment. That can leave the Fed in a pickle from time to time, particularly when deflation threatens the economy.

Here’s the problem with deflation in simple terms. Consumers hold off purchases in anticipation of lower future prices at a time when fiscal and monetary authorities are trying to get the economy back on track, partly by boosting consumption. Consumer demand falls as purchases are delayed, compressing margins at businesses and discouraging hiring. In this situation, a dose of inflation can be just what the doctor ordered. Inflation encourages investors to make purchases, because they anticipate that higher prices are around the corner.

Generally speaking, the Fed would rely on tweaking interest rates to control inflation. Setting short-term federal funds rates below expected inflation rates reduces credit costs and spurs borrowing for investment, thus boosting inflation. Setting interest rates above anticipated inflation rates has the opposite effect.

Historically, the federal funds rate has been the Fed’s primary tool to control inflation expectations and encourage or discourage consumption. But with the target rate pushing the zero bound for almost two years, such an approach is no longer an option. At this point, monetary policy is almost the only arrow left in the Fed’s quiver.

The problem with the next $600 billion round of quantitative easing (QE) is that it’s predicated on the belief that banks are reluctant to lend or that they need more resources to meet demand. That’s not the case.

According to the Fed’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices, lending standards have eased on commercial and industrial loans to firms of all sizes, as that market has become more competitive amid a sluggish economic recovery. The survey also reported that larger banks are easing standards on residential lending. That suggests that banks are able and willing to make loans but demand for those loans hasn’t materialized. If that’s true, another round of QE is likely to create more damaging inflation than an uptick in consumption.

There’s a fine distinction between positive and damaging inflation.

Positive inflation occurs when both prices and income rise in tandem, allowing purchasing power to offset rising prices. Damaging inflation occurs when a devalued dollar results in higher input costs–most commodities are priced in dollars–and increases the cost of finished goods, even though consumers can’t pay higher prices.

The danger is that with widespread unemployment workers won’t be able to push for higher wages while prices are rising. Meanwhile, companies might not be able to pass along cost increases to consumers, thereby squeezing margins and discouraging hiring. It’s possible that the Fed’s effort to stoke inflation could take, but that the move won’t dramatically improve our unemployment situation.

Here are two exchange-traded products will help you hedge your portfolio in case of that outcome.

Supplies of most commodities have been constrained as producers scaled back development of new resources. Commodities have gone on a bull run as global demand for everything from food to metals has recovered. With another round of QE, much of that easy money will find its way to both commodity producers and the physical commodities themselves.

Fund Portfolio holding iPath Down Jones-UBS Commodity Index Total Return ETN (NYSE: DJP) is an effective vehicle for gaining exposure to a broad swath of commodities.

A third of the index tracked by the exchange-traded note (ETN) comprises agricultural commodities such as corn, soybeans and wheat. Six percent of the index is devoted to live cattle and hogs. A little more than a quarter of the index is made up of crude oil, natural gas and gasoline, and the remainder is spread across metals such as copper and gold. It’s an extremely favorable balance given that most commodity funds are focused almost entirely on energy and mostly track oil prices.

With demand for commodities of all stripes on the rise and the prospect of inflation, buy iPath Down Jones-UBS Commodity Index Total Return ETN up to 50.

More than 40 central banks across the world have implemented some sort of stimulus program, so inflation isn’t just a concern in the US. With most commodities priced in US dollars, producers around the world could find themselves grappling with higher input costs due to dollar devaluation and excess cash circulating through the global financial system.

Treasury inflation-protected securities (TIPS) have been a popular inflation hedge in the US and many foreign governments have offered similar bonds in their own markets.

SPDR DB International Government Inflation-Protected Bond (NYSE: WIP) provides access to inflation-protected government bonds issued by 18 countries in both developed and emerging markets. As inflation rates rise the principal value of the bonds is adjusted upwards. Coupon payments are made on that higher value, thereby increasing yields. Additionally, the fund doesn’t hedge currencies, which insulates it against both inflation and a falling dollar.

SPDR DB International Government Inflation-Protected Bond is a buy under 64.

Benjamin Shepherd is co-editor of GlobalETFProfits.com and editor of Louis Rukeyser’s Wall Street.