Crescenzi: Fed's Treasuries Running Out

Offsetting this at the present is the fact that bank credit has been contracting in recent months, the first such occurrence in about 50 years. This means that banks are shrinking their balance sheets, reducing the credit they extend via loans, leases and securities purchases.

Only when bank credit begins expanding at a pace that exceeds what is needed to obtain the maximum sustainable growth rate for the economy would any enlargement of the Fed's balance sheet become an inflation threat. By that time, the Fed would almost certainly be boosting the fed funds rate and reducing the growth rate of bank reserves.