Stock exchange traded funds ended the first half of 2011 with a rip higher this week, fueling hopes the market will be just fine after the Federal Reserve wraps up its second round of quantitative easing, or “QE2.”
Yet some bears are sharpening their claws, arguing that markets have been propped up by artificial support from the Fed. There is even speculation that another round of QE could be on the way if the economy doesn’t pick up again.
In the third quarter, investors will find out which side is right.
On Thursday, the Federal Reserve concluded its $600 billion bond-purchasing program, reports Steven C. Johnson for Reuters. The Fed has not hinted at any future easing policies in the near-term.
“QE2 was an extraordinary policy tool designed to stave off deflation and it has clearly worked,” stated Alan Wilde, a manager at Baring Asset Management, in the report.
The news of QE2 last year bolstered the stock market rally, but it also helped drive up oil prices higher while money went into speculative investments. The dollar has weakened and displayed an inverse correlation with stocks. In other words, stocks and the dollar have been moving in opposite directions.
Talk of “QE3” is surfacing with the economy hitting a soft patch and unemployment still uncomfortably close to 10%.