Bottom line: The Fed’s excess reserves are not inflationary. As Greg Ip noted in 2009, "Reserves have not been a relevant constraint on bank lending for decades, if ever. Bank lending is constrained by customer demand and by capital." Forget about excess reserves. The Fed’s easing simply doesn’t have a lot of influence in a world of overleveraged households lacking in credit demand. And Fed communications of inflation and interest rate policy is not going to be a make-or-break policy tool. If we want to get the economy on the right track, we will need to focus on jobs.Read it at Credit Writedowns
What about all those excess reserves at the Fed?
by Edward Harrison