Although estimated effects vary, a growing body of research supports the view that LSAPs are effective at bringing down term premiums and thus reducing longer-term rates.10 Of course, the Federal Reserve has used this unconventional approach to lowering longer-term rates because, with short-term rates near zero, it can no longer use its conventional approach of cutting the target for the federal funds rate.11 Accordingly, this portion of the decline in the term premium might ultimately be attributed to the sluggish economic recovery, which prompted additional policy action from the Federal Reserve.
This assessment is also reflected in the March 2021 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP growth at 4.0 per cent in 2021, 4.1 per cent in 2022 and 2.1 per cent in 2023, broadly unchanged compared with the December 2020 Eurosystem staff macroeconomic projections.1 The risks surrounding the euro area growth outlook over the medium term have become more balanced owing to better prospects for the global economy and progress in vaccination campaigns.