13 Will the asset purchase program lead to excessive inflation? A concern voiced by some observers is that the asset purchase program will lead to excessive inflation. One rationale for this view is that the economy is currently operating with little slack – that is, an unemployment rate that is not far from the NAIRU.
A second rationale is that asset purchases have ballooned the Fed’s balance sheet and the supply of bank reserves. I will consider each argument in turn. Extent of slack in the economy.