Greg Mankiw challenges the notion put forward in this Wall Street Journal article that a rapidly expanding--or "exploding"--monetary base is a sign that inflation is around the corner. While this graph seems to spell out inflation:

Mankiw writes at his blog that much of the monetary base is being held as "excess reserves," and The Fed is paying interest on these reserves.  This in turn gives banks incentive to hold the reserves, as long as the interest rate is high enough:

Here is one way to think about it.  The standard way of reducing the monetary base is open market operations.  The Fed sells Treasury bills, say, and drains reserves from the banking system, reducing the monetary base.  But consider what this means in the monetary current regime.  An open market operation merely removes interest-paying reserves from a bank's balance sheet and replaces them with interest-paying T-bills.  What difference does it make?  None at all.

Both reserves and T-bills are interest-paying obligations of the Federal government (including the Federal Reserve).  They are essentially perfect substitutes.  The monetary base, however, includes one of them but not the other, largely for historical reasons.

The bottom line is that when reserves pay interest, the monetary base is a pretty uninteresting economic statistic.

Read The Monetary Base is Exploding.  So What? here.