This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
— Ben Bernanke, Washington Post op-Ed, Nov 4, 2010,
Emphasis mine. What data is Bernanke looking at? Here is a snip of the chart for the Ten Year Treasury rate for the last year:
Related to QE, Point A is April 2010 when the Fed terminated QE1. Immediately at that point a significant rally in the 10-year bond ensued that lasted into August with rates falling significantly. This rally was stopped cold in August around the Point B when the rumours of a possible QE2 started in earnest via Steve Leisman at CNBC. Since this time Mr. Chairman, rates have certainly NOT fallen, in fact they look like they are potentially ready for an upside breakout.
If the Fed does not specifically target interest rate levels with QE2, can they hope to lower the longer term interest rates by just "buying"? It looks like we will find out starting today.