Thursday, October 30, 2014

End of an Era

The Federal Reserve announced yesterday what many investors have been expecting: Its bond buying program will end this week, as October draws to a close. The third and presumably final round of quantitative easing had begun in September 2012, meaning it will have lasted for just over two years.

The end of QEIII is a signal that the Fed has confidence in this economy. Forecasters expect that third quarter GDP will grow at about 3 percent. At the same time, the end of the program is of concern to investors, since the asset purchases had been intended, in part, to prop up the stock market.

The ends to the earlier phases of the program reflected that. After the end of QEI in 2010, the S&P 500 fell 12 percent. And in 2011, three months after QEII concluded, the S&P 500 dropped 14 percent. Markets were fairly quiet yesterday, though, so it may be that this is a program whose time has come to a proper end.

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