The Fed also now pays competitive rate for banks parking excess reserves.

FORBES: Inflation Fears and Facts

Raising the rate of interest paid on excess reserves can make new bank loans less attractive, thus tempering overall credit creation.

ECONOMIST: Quantitative easing

But if this trend in private bank money creation continues, it does augur for higher rates of monetary inflation, especially, as Chairman Bernanke suggested at Jackson Hole in August, if aided and embedded by a reduction in the rate of interest the Federal Reserve pays banks on those excess reserves.

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Banks now get a 25 basis point interest rate return on their reserve deposits with Federal Reserve Banks, including their excess reserves.

FORBES: Sterilizing QE3

"In practice, the federal funds rate has fallen somewhat below the interest rate on reserves in recent months, reflecting the very high volume of excess reserves, the inexperience of banks with the new regime and other factors, " he said.

FORBES: TARP

Those higher rates would encourage banks to maintain their excess reserves at the Fed, thereby slowing the increase in velocity associated with a higher Fed Funds rate.

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All else being equal, that would push the fed funds rate below the Fed's target, which is why it sterilises those excess reserves by selling some of the Treasuries in its portfolio.

ECONOMIST: The Federal Reserve