Many critics of the current Fed purchasing of assets have contended that this move is going to lead to dangerous inflation. Federal Reserve Bank of Minneapolis President, Narayana Kocherlakota, however said that "This basic logic isn’t valid in current circumstances." The reasoning behind his feelings towards the matter stem from the fact that the The Fed currently has $1 trillion is excess reserves scattered throughout the nation's banks.
Kocherlakota did however suggest a plan to mimic the effect of lowering the interest rate which already has been gravitating around 0 for the last year or so. He beleives that the combination of a consumption tax of 1 percent, a labor- income tax cut of 1 percentage point and an investment tax credit implemented in 2011 would have the equivalent impact of a 1 point interest-rate reduction by the central bank, Minneapolis Fed research shows.
Unfortunately I don't have the knowledge to evaluate this assumption however, it will be interesting to assess this plan next semester in macroeconomics.
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