NY Fed Prez Warns: We Have No Idea If We Will Ba Able to Smoothly Unwind the Trillions in Excess Reserves if That Money Starts to Hit the Economy

A large portion of  newly printed Fed money has never hit the economy. $2.4 trillion worth! The money is sitting at the Federal Reserve as excess reserves. The Fed knows that if this money starts to enter the economy it will cause massive price inflation--and when they speak candidly ( a rare occurrence), it's clear they really don't know if they will be able to sop up the reserves without causing massive disruptions in the economy.

 New York Fed president William Dudley, just yesterday, came as close as a senior Fed person is going to come in admitting this major looming problem/

WSJ reports on comments made by him during a panel discussion, on Saturday, in Philadelphia (Note: "moving to a more normalized state of monetary policy" means soaking up the excess reserves if they start hitting the economy)

Mr. Dudley also said that when it comes time to unwind the Fed’s easy-money stance, uncertainty is again a major issue facing central bankers.

“There could be unintended consequences” about moving to a more normalized state of monetary policy, he said.
One of the big challenges facing central bankers now is the unprecedented nature of current policy. “We just don’t have experience with this kind of episode,” he said.
Mr. Dudley said the longer-run framework for monetary policy is also up in the air, given all the changes the Fed has made in its tool kit for influencing the economy. “There is an open question” about how the Fed will conduct monetary policy over the long run, the official said.
He declined to say what the fate of a new central bank tool designed to soak up liquidity will be. Fed officials have been upbeat about this facility, known as fixed-rate overnight reverse repurchases agreements. It is in a testing phase scheduled to end at the end of this month.

When Dudley says  “We just don’t have experience with this kind of episode." He means it. Below is a chart of excess reserves since 1980. They barely existed before Bernanke started printing like a mad man in late 2008. If this money starts to hit the economy, price inflation, without doubt, will hit double digit levels.