Fed Officials Count on Untested Tool to Hold Off Inflation

By Caroline Salas

Federal Reserve officials are staking their inflation-fighting credibility on an untested tool: the power to pay interest on bank reserves.
Congress granted the Fed this ability in 2008, and ChairmanBen S. Bernanke, Vice Chairman Janet Yellen and New York Fed President William Dudley have all cited it as a main reason why they’ll be able to keep the U.S. economy from overheating after pumping record amounts of cash into the financial system. Raising the rate, currently at 0.25 percent, is intended to entice banks to keep their money on deposit at the Fed instead of loaning it out and stoking inflation.
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Comment: So far it has worked, yet it shows how absurd central banking has become. Even more so: any slight error on the side of the Fed will now have lethal consequences. And err they will.