The Federal Reserve's plans to plunge more money into the economy are “necessary, safe, and effective" and “will not lead to adverse aftereffects,” Ben Bernanke's top deputy said today. Giving a speech at Vanderbilt University, Fed Vice Chairman Donald Kohn admitted that the Fed's balance sheet has swelled, but he said the Fed will keep inflation in check—in part by eventually "reversing the programs" it has started.
Kohn conceded that the threat of rising inflation is a concern. The Fed might try to offset it with an even more specific inflation target—probably around 2% in the long run—to help keep prices stable. Kohn said the key is to stay flexible: "That flexibility could entail doing more to ease credit... or it could involve reversing actions to forestall potential inflationary effects of past action."