But that’s always been the key question to ask about Fed policy, even when the Fed had a much smaller balance sheet. And that’s my point: Because the Fed can pay interest on reserves, the size of its balance sheet does not, in and of itself, undercut the credibility of its commitment to keep inflation at 2 percent or a bit under.
On the other hand, there is also a risk that the rate of inflation might decline due, for example, to a decline in medium- to long-term inflation expectations. II. Conduct of monetary policy  The Bank recognizes that Japan’s economy is faced with a critical challenge of overcoming deflation and returning to a sustainable growth path with price stability.