Symptoms, Diseases, and the Fed

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This week, someone asked me about the excess reserves held by the banking system and what the Federal Reserve is likely to do about it. As it turned out, what he really wanted to know was whether inflation is likely to take off and which signals might alert us if the economy and markets are about to roll over. I would have been happy to talk about the first topic (a symptom), but the second (the underlying disease) was far more useful.

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