It looks likely: the sluggishly running U.S. economy might be shaken up by another round of quantitative easing. But how will this affect the economy, markets and exchange traded funds (ETFs)?
Federal Reserve Chairman Ben Bernanke recently stated that the Fed will engage in another round of quantitative easing, but a lot of people don’t actually know what this will do, comments Steve Chiotakis for MarketPlace.
Allan Sloan for Fortune Magazine told MarketPlace that quantitative easing, or QE2 for those on the Street, is where the Fed buys all sorts of long-term securities, mostly Treasuries, which helps reduce the interest rates on those securities. By helping to lower interest rates, companies and small business will more likely borrow cash and expand their business, which would help stimulate the economy, as the theory goes.
Or put more simply, the Fed is printing more money.
The consequences of printing more money is that inflation will rise and the dollar will depreciate, which has happened against a basket of foreign currencies as currency traders anticipated a quantitative easing. [6 Currency ETFs to Diversify from the Dollar.]