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June 13th, 2011 10:10 AM
The flood of Federal Reserve money that has supported Wall Street and the rest of the U.S. economy for 2-1/2 years will shrink to a trickle with the conclusion of the Fed's bond purchases announced on Friday.
The Fed said it will buy $50 billion of Treasuries, the final series of government bond purchases that marks the last phase of the $600 billion program it launched in November 2010 to prevent another recession.
As a result, once the purchases are concluded on June 30, the financial sector will receive only a fraction of the roughly $100 billion a month in easy money it has been getting from the Fed.
The conclusion of the Fed's bond-buying program, known as "Quantitative Easing 2," does not mean the stimulus will come to a complete stop. The Fed will reinvest maturing securities, mainly mortgage-related debt, which analysts predict will run at $12 billion to $16 billion per month.
"From a psychological standpoint, it is important for the market to still feel the constant presence of the Fed," said Ralph Axel, interest rate strategist at Bank of America Merrill Lynch in New York.
This gradual approach to unwind policy support is likely needed given investor anxiety over a slowing U.S. economy and the festering public fiscal problem in Europe.
While still a lot of money, it is a huge step down from stimulus levels at the height of the buying campaign, dubbed by markets as QE2 because it was the second round of Fed asset-buying in the wake of the 2008 financial crisis.
 
Brendon Garcia-First Capital
Posted by Adam Andrus on June 13th, 2011 10:10 AMPost a Comment (0)

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