I had a chance to speak with Charles Plosser later in the evening at a reception. During the afternoon interview session, I had asked him why interest rates are so low. He said then that basically demand for lendable funds was low. He did not mention the glut of funds from Asia as a contributing factor.
But in our later conversation I asked him more about the Fed's policies of quantitative easing and producing tonnes more high-powered money. He said then, elaborating on points he had made in his talk and in the interviews, that the banks are holding a LOT of excess reserves. [Note to David Laidler et al: isn't this a key feature of a liquidity trap?] Then, and this was one of the points I was hoping to get to, I asked him if all those excess reserves wouldn't cause inflation over the next 5 to 10 years, and if so, why markets weren't building that into their inflationary expectations and driving up long-run interest rates.
He agreed and expressed concern about all the excess reserves. He said, somewhat in bureaucratese, that the Fed's view is that as demand for lendable funds increases, things could get out of control quickly, but that the Fed has assured everyone that as that even begins to happen, the Fed will implement policies to soak up those excess reserves. It was clear he doesn't swallow this story 100%.
A photo I tried to take from the distant media bench during his presentation:
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.