Talking about the Fed's bond purchases, traders are most concerned with one question: how much market volatility can this actually bring? Instead of just discussing theories, it's better to look back at the historical record.

**During Crises: Central Bank Actions Are Immediately Effective**

During the Great Depression (April to August 1932), the Fed aggressively bought up $1.1 billion in mid- and long-term government bonds. The figure doesn't seem large, but relative to US GDP at the time, it accounted for 2%, which was a major move. The result? Mid-term bond yields plummeted by 114 basis points, and long-term bonds also dropped by 42 basis points. Borrowing costs directly fell, encouraging enterprises and individuals to act.

Fast forward to the 2008 financial crisis. The Fed launched quantitative easing, and the market's panic level was off the charts. Data shows that whenever the Fed's bond purchases reached 1.5% of the US national debt balance, the 10-year Treasury yield could drop by 15 basis points. At this point, the market was completely locked in fear, and the central bank's intervention acted like a reassurance pill, quickly calming investors.

Why are the effects so strong during crises? Two reasons: first, the central bank's money is especially valuable in the market, making each unit of bond purchase more impactful; second, the banking system's multiplier effect is activated, allowing base money to rapidly amplify.

**Recovery Phase: Diminishing Returns**

But there's an interesting turning point. As the economy begins to recover, continued bond purchases by the Fed become less effective. The market is no longer panicked, risk appetite gradually recovers, and the policy's dividend starts to decline. This explains why successive rounds of QE by the Fed have led to increasingly muted market reactions—not because policies are ineffective, but because the environment has changed.

What does this mean for traders? It means paying attention to timing when observing Fed actions. Bond purchases during crises are market confidence boosters, but in normal times, they serve as routine maintenance. History shows us that policy effectiveness often depends on the market's state at the time, rather than the policy's magnitude itself.