Monday, June 27, 2011

The Continuation of Quantitative Easing

There is quantitative easing and then there is quantitative easing. Confused? So are some market observers.

After Ben Bernanke's speech last week regarding the end of Quantitative Easing 2.0, the FOMC Committee inserted a small caveat that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. The policy is necessary to keep interest rates artificially low. The irony here is that the yields on Treasurys remains very low even without Federal Reserve intervention b/c of widespread, lingering fears about debt bubbles in Europe, political uncertainty in the Middle East, and tightening in China.

The Bottom Line: The Federal Reserve will continue buying Treasuries after the end of QE 2.0 until it decides not to anymore.
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