My view is: Long-term interest rates = Expectations of Short-term interest rates + Expectations of future economic growth + Expectations of future inflation +

My view is: Long-term interest rates = Expectations of Short-term interest rates + Expectations of future economic growth + Expectations of future inflation + Uncertainty You're not really locking money up as (under normal circumstances) you are free to sell the treasury at any point after purchase. The Fed has already distorted the market enough as it is; they are looking for a way to return to normal market conditions - hence the debate around when to finally raise the FFR and short term interest rates. Hypothetically the Fed can announce whatever it wants, but realistically it is extremely constrained in its actions at the moment. Arguably, the most immediate risk from the Fed’s policies is that banks could use those newly created excess reserves too quickly. Banks now have an additional $2.6 trillion in excess reserves, which means that they can create up to approximately $26 trillion in new money.[21] In other words, banks now have the power to create more than twice the amount of money currently in the U.S. economy, thus heightening the risk of future inflation.[22] As the economy improves, the Fed may have to pay higher interest rates on these reserves to keep banks from dramatically increasing their lending. Paying higher rates, all else being constant, would exacerbate any “losses” suffered by the Fed, thus increasing the political problems discussed in this Backgrounder. For those same political reasons, there are risks to the Fed simply holding all of these assets indefinitely because interest rates are expected to rise in the future. If those rates rise, the Fed would suffer “losses” due to paying higher rates on its liabilities than it receives on its assets, again putting the central bank in a difficult political position. Also, as the world’s largest debtor, the federal government is highly vulnerable to an interest rate shock that could make the federal budget deficit much worse. A rule of thumb is that every one percentage point rise in interest rates increases the budget deficit by about $1 trillion over a decade. The safest course of action, therefore, is to start undoing the QE policies by selling off these securities. Securities sales are typically associated with contractionary monetary policies, but because these reserves are excess reserves, and since they have done little to increase economic activity in the first place, removing these reserves should not have an adverse impact on the economy. Nonetheless, the Fed should minimize any negative effects by announcing a deliberate plan to sell the bulk of these securities over, for instance, the next six years. The Fed can also partly offset (or sterilize) these sales with its normal temporary open-market purchases of short-term Treasuries.[23] http://www.heritage.org/research/reports/2014/08/quantitative-easing-the-feds-balance-sheet-and-central-bank-insolvency http://www.heritage.org/research/reports/2014/08/quantitativ...