Large-scale asset purchases also provide monetary accommodation by lowering long-term interest rates. Working through the portfolio-balance channel, asset purchases reduce the supply of long-duration assets in the hands of the public, depressing term premiums and thus reducing longer-term yields.
At times, the decision to begin or extend an asset-purchase program may also have a signaling effect, to the extent that market participants see that decision as indicative of policymakers’ commitment to an accommodative policy stance. However, it is important to recognize that the potential signaling aspect of asset purchases depends on the broader economic and policy context.