Fed Stands Ready To Monetize Deficit
While yields remain very low by historical standards, the Fed still wants them lower in order to push down other interest rates, the idea being that given a certain level of risk aversion, lower Treasury yields will lower other interest rates as well, and vice versa.
Since the deficit, and so the supply of Treasuries, will only get bigger during the new Obama administration, lower Treasury yields will require higher demand. To achieve that objective, the Fed could of course lower inflation expectations or increase risk premiums, but that would conflict with the reason they had in the first place for wanting to lower Treasury yields. That leaves them essentially with the option of monetizing the debt, by directly or indirectly buying Treasuries.
It's either that or the Fed accepting what chairman Bernanke thinks is the greatest possible evil: deflation. I see little reason to doubt that Bernanke will choose inflation over deflation, meaning that monetary inflation will likely get worse.