So, even when supply bottlenecks are removed, and when the surge in demand slows, the reality is that the general price level will not revert to its previous level, even if inflation itself ultimately subsides, because the value of currencies will itself have been reduced so that any value of commodities is then represented by a higher money price, measured in terms of these devalued money tokens.
The US Federal Reserve has now stopped its programme of QE, and begun a programme of QT (Quantitative Tightening) by which it does not replace the bonds it holds as they mature, and will eventually, thereby, lead to the quantity of bonds held on its balance sheet declining. As the bonds it holds mature, and are redeemed, the state, in respect of government bonds, and financial institutions in respect of mortgage bonds, hand over money to the Federal Reserve, thereby, taking it out of circulation. If it wants to tighten more quickly it actively sells bonds into the open market.
But, given that it holds around $9 trillion of such bonds on its balance sheet, it will take years for it to reduce its holdings even to the level prior to the lockdowns, let alone prior to the start of QE, after 2008. But, moreover, QE is only one means of the Federal Reserve, or central banks increasing liquidity. They can do so via their normal banking operations, and the creation of additional notes and coins, and lending to commercial banks.
The banks themselves create additional liquidity by their own creation of deposits and via lending. With central bank policy rates currently so low, and with economic activity, and thereby, market rates of interest set to rise, even as central banks raise policy rates, from extremely low, and even negative levels, it becomes profitable for commercial banks to borrow from the central bank and to lend at much higher market rates of interest, thereby continuing to increase liquidity, even as the central bank attempts to curtail it via higher rates, and reductions in liquidity. In addition, there is the point made earlier that, in conditions of rising economic activity, firms themselves increase liquidity by an automatic increase in commercial credit.
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