A US-backed Treasury instrument isn't counted as part of the money supply from old gold standard accounting rules (think savings account), but they represent money that was previously created by Congress. Converting them back into reserves (think checking account) makes them part of the M2 supply again, but it doesn't actually change what is considered money.

This goes against the common rhetoric concerning money creation, but anyone familiar with Treasury/Fed operations will back me on this. The Fed doesn't have the authority to create "money" and can only create "reserves" to facilitate interbank transfers of loaned funds. Those reserves function just like money for the end user, but they cannot retire the debt that created them within the banking system. If banks could create their own "money" they would have no reason to make loans. Reserves aren't considered money creation because they are balanced by the borrower's promise to pay and are reduced as the loan principal is paid down.

Inflation of assets usually happens when there is a shortage of secure bonds available to investors and they begin to look to mortgage and municipal bonds, as well as real property to park their money. The "fear of" inflation can be self realizing if interest on bonds isn't sufficient, but I doubt that anyone really expects rates to stay at present low levels for much longer.

This is especially true with the pressure the Fed is under to raise rates to combat inflation. However, I believe the Fed managers have come to realize that higher rates on savings actually enables inflation in the long run by injecting more money into the economy.