[RobertoG]

>>"or this money will eventually end up as new money in someone's pocket (via new loans) and potentially create inflation. "

For that to happen you need enough credit demand in the economy.

It could happen, and, as you say, the Fed would increase the interest rate making reserves less available (credit more expensive), but the number of reserves in the system doesn't cause directly more money in the economy. It depends of the type of recovery.

[fauigerzigerk]

Agreed, but the difficulty is that the Fed cannot easily distinguish between different kinds of credit demand.

They may justifiably want to keep interest rates low and loans easily available to help businesses and governments roll their pandemic induced debt until they can grow out of it.

But then some other credit worthy borrower comes along and snaps up those cheap loans to buy into some asset market that doesn't need any support.

And where they do have the tools to make that distinction they don't appear to be using them. I don't understand why they keep buying mortgage debt while house prices are already looking dangerously inflated.