Originally Posted by chinaco
QE 2 is supposed to end this summer.
What do you think the effect will be on the:
Thoughts, opinions, strategies....
There will be almost no effect on the stock market, as the easing program will phase out as other economic activity picks up. There may be a drag on some financial stocks that have based their near term business on free short term money.
For monitarists, the Fed will stop adding to the money supply as the velocity of money starts to increase. Further along, the increase in velocity of money will require the money supply to be reduced, which the Fed will do by selling those Treasuries bought during QE on the secondary market for cash.
The sales of these Treasuries will put downward pressure on the prices of the notes and bonds, or in other words, will raise the interest rates on them. This is, of course, exactly what most economists and the bond market would expect to happen, so this should be a very calm, measured evolution.
Longer term bond prices have already moved in anticipation of this. Note the rise in interest rates (discount in price) for the 10 year and longer Treasuries, for example.