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Fed's Plosser: Massive bank reserves could trigger inflation
May 20, 2014 / 6:17 PM / 3 years ago

Fed's Plosser: Massive bank reserves could trigger inflation

Philadelphia Federal Reserve President Charles Plosser speaks at the Council on Foreign Relations in New York, May 8, 2014. REUTERS/Brendan McDermid

WASHINGTON (Reuters) - The $2.5 trillion in reserves accumulated by banks could be the trigger for more rapid inflation if banks start lending that money quickly in an improving U.S. economy, Philadelphia Federal Reserve President Charles Plosser said on Tuesday.

Plosser also said that it was the “natural tendency” of central bankers to wait too long to raise rates, and that inflationary forces may be building in the economy now that could force the Fed into a quicker-than-expected response, or use tools to restrain bank credit.

Between initial signs of wage growth and strong employment growth, he said there was increasing evidence that rates should be lifted from the current zero level “if not now, than relatively soon.”

Reporting By Howard Schneider; Editing by Andrea Ricci

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