Charles Plosser is worried about the Fed’s $2,500,000,000,000 in excess liquidity:
These reserves are just sitting in the bank system, basically doing nothing. That’s because demand for loans has been unusually weak amid an economic recovery that’s the slowest on record since the Great Depression.
“These reserves are not inflationary right now,” Plosser said in a meeting Tuesday with reporters in Washington.
Yet if borrowing begins to surge and those reserves start to pour out of the banking system, Plosser worries, “that’s going to put pressure on inflation.” The result: the Fed could be forced to raise interest rates faster and earlier than it would like and perhaps slam the breaks on the economic recovery.
The Fed tried to avoid such a problem in the past simply by not creating so much excess reserves in the first place.
That last line strikes me as a very subtle way of calling Ben Bernanke and Janet Yellen idiots.
Of course none of this comes as any surprise to Longtime Sharp VodkaPundit Readers™, who’ve been getting dosed with such doom & gloom for years.
Join the conversation as a VIP Member