Stock exchange traded funds were deep in the red Monday and could see more big swings this week as the Federal Reserve meets and investors look for further easing from the central bank.
Expectations of some type of policy announcement on Wednesday have been running high since Fed Chairman Ben Bernanke last month said the Fed will take an extra day at its September meeting to consider additional support for the economy. [Stock, Gold ETFs Rally After Bernanke]
The central bank has also promised to keep short-term interest rates near zero until at least mid-2013.
So what additional steps might the Fed take as economic data weakens?
“Of the remaining options, it seems unlikely that the Fed will further expand the overall size of its balance sheet, in what would be known as QE3,” said David Kelly, chief market strategist at JP Morgan Funds. “The Fed already has $2.9 trillion in assets, three times its holdings of three years ago and faces a long and complicated process in eventually returning them to normal.”
Treasury ETFs rallied Monday as stocks and bond yields fell on concerns over a possible Greek default. The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) jumped 2.6% to a new 52-week high. Yields on the 10-year note fell back under 2%.