Federal Reserves ‘Interest On Reserves’ Doesn’t Limit Inflation

The difference between what economists believe and what’s true is Pacific Ocean vast. Think the popular view that the Federal Reserve, by paying banks to park reserves at the central bank, is containing inflation. Where to begin? 

First, inflation is one thing and one thing only: a shrinkage of the exchange medium circulating such that it exchanges for fewer and fewer market goods. In our case, inflation is a shrinkage of the dollar. Except that the dollar’s exchange value isn’t, nor has it ever been, part of the Fed’s policy portfolio. 

Read the full article on Forbes.