Even though the Committee is communicating a monthly pace and composition of purchases, the predominant effect of those purchases on interest rates likely still comes from the expectations of the total stock of risk that will be removed from private investors and the length of time that the Federal Reserve will hold this risk. One feature of the current program  4  For more information about Treasury market liquidity, see Fleming (2002) and Fleming (2000). 5  For example, see Li and Wei (2012), Gagnon et al (2010), Krishnamurthy and Vissing-Jørgensen (2011), Wright (2012), and Hancock and Passmore (2011). 2  BIS central bankers’ speeches  is that market participants’ expectations of the total amount and composition of securities that the Desk will purchase – and thus, the amount of monetary policy accommodation – will evolve over time, along with incoming information about the economy, as well as considerations about policy efficacy and costs. The Desk’s most recent Survey of Primary Dealers indicates that the median respondent expects the FOMC to purchase about $ trillion in securities, roughly equally split between Treasuries and agency MBS, over the course of 2013 and early 2014.
Vickery, James and Joshua Wright (2013). “TBA Trading and Liquidity in the Agency MBS Market.” Federal Reserve Bank of New York Economic Policy Review, Forthcoming. Wright, Jonathan H. (2012). “What Does Monetary Policy Do to Long-Term Interest Rates at the Zero Lower Bound?” NBER Working Paper Series 17154. Cambridge, Mass. : National Bureau of Economic Research, June. 6  BIS central bankers’ speeches