They worry that low interest rates and the Fed's large balance-sheet could nurture inflation expectations even when unemployment is high.

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The Fed would contract its balance sheet by selling interest-bearing Treasury securities back to the public.

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Much of expansion is absorbed by non-monetary liabilities on the Fed's balance sheet.

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On the one hand, the Fed has to be feeling pressure relative to their ever-expanding balance sheet that has swelled to disturbing levels.

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During a question-and-answer period, Lockhart attempted to quell concerns for the Fed's hefty balance sheet by claiming he wasn't worried, and that its growth will not necessarily drive inflation, according to TradeTheNews.com.

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So although a rate cut remains on the table, the Fed will continue for the moment to rely on the growing use of its balance-sheet to counter the credit crunch.

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When this happens, the Fed, rather than the banks, will take the balance sheet hit on trillions of dollars of long-term assets.

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