The Federal Reserve’s expanded balance sheet won’t create high inflation, according to Federal Reserve Bank of San Francisco president and chief executive officer Janet Yellen, because current economic conditions require increased demand.

“Monetary policy fosters inflation when it loosens the stance of policy enough to create excess demand for goods and services,” Yellen told bankers in Idaho yesterday, according to prepared text of her remarks released by the Fed. “Right now, we have exactly the opposite — an excess supply of goods and services. We need more demand — not less — to offset slack in labor and product markets.”

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