Expectations about the Federal Reserve’s Balance Sheet and the Term Structure of Interest Rates
by Jane Ihrig, Elizabeth Klee, Canlin Li, Min Wei, and Joe Kachovec
Board of Governors of the Federal Reserve System
This paper assesses the effects of the Federal Reserve’s asset purchase programs on Treasury yields, and provides a framework
to evaluate these effects both initially and over time as market expectations of the economy and the Federal Reserve’s
balance sheet evolve. Our framework suggests that the first purchase program had the largest initial impact on the ten-year
Treasury yield, estimated to be about 34 basis points in early 2009. Although the effect of the first program waned
considerably by the end of 2015, at that time all programs combined were depressing the ten-year yield by about 100
basis points, reflecting expectations of economic conditions and Federal Reserve policy.
JEL Code: G1, E4, C5.
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