As I noted earlier, given that inflation was notably higher and unemployment lower than it was last fall when we embarked on our second round of asset purchases, it wasn’t clear that further accommodation was called for. In addition, I believe these actions will do little to improve the near-term prospects for economic growth or employment, but they do pose some real risks.
Policy actions are not free and should be evaluated based on the costs and benefits. Based on our experience with Operation Twist in the 1960s and with last year’s QE2, the reduction in long-term rates from our actions in September is likely to be less than 20 basis points for the 10-year Treasury yield, which is currently only 2 percent.