When the Fed or other central banks buy bonds, it creates liquidity and pushes real interest rates down.

Judge against the economic research consensus on central bank bond purchases (QE). True: Fed, ECB, BoE and academic event studies and reviews broadly find that such purchases expand bank reserves/liquidity and lower longer-term yields, including real (inflation-adjusted, e.g. TIPS) yields. Mostly true: both effects are broadly supported, but the real-rate effect is found to be smaller, temporary, or mainly via term premia. Mixed: liquidity creation is well established, but evidence on real rates is genuinely split. Mostly false: the effect on real rates is unproven or applies only to particular episodes, and the claim generalises it as a rule. False: research shows bond purchases do not create liquidity or systematically raise real rates.

Set before the research began.

1. E1 Monetary Policy and Real Borrowing Costs at the Zero Lower Bound Board of Governors of the Federal Reserve System (FEDS working paper) · 19 December 2013

   “Consequently such a policy easing leads to a 4 basis point decline in the 10-year TIPS yield, a result that is in line with the estimates provided by Hanson and Stein [2012]; consistent with their findings, we also find that lower term premia account for a majority of the decline in longer-term rates.”

2. E2 Quantitative Easing: Lessons We've Learned Federal Reserve Bank of St. Louis (The Regional Economist) · July 2012

   “The major lesson learned is that financial frictions, e.g., imperfect asset substitutability, provide a meaningful avenue for monetary policy to influence long-term real interest rates, regardless of the short-term interest rate target.”

3. E3 Speech by Governor Bowman on the Federal Reserve's balance sheet as a monetary policy tool Board of Governors of the Federal Reserve System · 28 May 2024

   “A range of studies indicate that the Fed's asset purchases were effective in raising the prices of and lowering the yields on the targeted class of securities.”

4. E4 Federal Reserve: Unconventional Monetary Policy Options Congressional Research Service · 6 February 2014

   “The Fed’s asset purchases are financed by increasing the reserves of the banking system.”

I rated this mostly true. A Congressional Research Service report says the Fed pays for its asset purchases by increasing banking-system reserves, which supports the liquidity part of the claim [E4]. A St. Louis Fed review concludes that bond purchases give policy a meaningful way to influence long-term real interest rates [E2], and a Fed Governor's speech cites a range of studies finding that purchases lowered yields on the targeted securities [E3]. However, that speech does not address real yields specifically. A Fed staff study finds that a policy easing lowers the 10-year TIPS (inflation-adjusted) yield, with lower term premia accounting for most of the decline in longer-term rates [E1].