“Part of the Fed’s mandate is to support full employment, so they will have to stay involved,” commented Quincy Krosby, investment strategist at Prudential Financial, according to the Reuters report.
Bill Gross at Pimco opines that the Fed may fire up the money printing presses as soon as August if the U.S. economy shows any signs of worsening or turning into another recession.
BofA-Merrill Lynch economist Ethan Harris believes in what he calls a “nuclear option” where the U.S. central bank may buy enough Treasuries to keep a cap on yields as a way to maintain growth. Fed chairman Ben Bernanke has stated that the Fed has previously looked into announcing an explicit ceiling for Treasury yields.
In any case, the main themes for investors in the third quarter will be watching inflation and if the economy can regain speed. [Treasury, Stock ETFs Diverge as ‘QE2’ Winds Down]
SPDR S&P 500 ETF (NYSEArca: SPY)
Max Chen contributed to this article.