The Fed's highly controversial QE2 program is scheduled to end in June
The Federal Reserve's second round of quantitative easing, which began in November and is commonly referred to as QE2, is slated to end in June. Experts expect the Fed to finish the program, in which it pledged to buy
Proponents say the economy is better off because of the program, while inflation hawks say it has propped up asset prices across the board. They caution that markets are in for a reckoning after the Fed program winds down. Here are a few possible scenarios for the markets after QE2 ends:
Bond yields continue to rise.
Even with QE2 in place, treasury yields have slowly moved higher. On
Some experts are less concerned about a dramatic run-up in treasury rates.
After the Fed exits, "you wouldn't have a big buyer, but it's still not the same as them selling them," says
Stocks could take a hit.
The
How the wind-down is perceived by investors is also important.
"If the market takes it as a sign of confidence in the economy, that's a good sign," says
Still, others contend that the market has already priced in the effect of the end of QE2 and stocks are bound for higher gains. "My guess is that stocks will be higher after June by the end of the year than they are today," says
Rally in commodities slows.
Commodities have also benefited during the Fed's easing program. Gold still trades around
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