U.S. policymakers are signaling that the end to the second round of quantitative easing in June could be abrupt, rather than a gradual withdrawal of stimulus as had been employed previously, according to Bloomberg. The Federal Reserve is roughly halfway through the $600 billion in Treasury purchases being used to stimulate the economic recovery, and Atlanta Fed President Dennis Lockhart said on Thursday, “I don’t see a lot of gain to reverting to a tapering approach” for the removal of support for the economy. Philadelphia Fed President Charles Plosser concurred that a slow drawdown of stimulus would not be necessary.
The abrupt end of quantitative easing would represent a bet that the economy is strong enough to bear high long-term interest rates, according to Dan Greenhaus of Miller Tabak & Co, as well as rising expectations for the exit from economic stimulus. Despite recent improvements in economic data, Fed officials have signaled that an early end to the program is highly unlikely. The expectation for the withdrawal of stimulus is not matched with a coincident forecast for tighter monetary policy, with economists anticipating that the first interest rate hike will come in the first quarter of 2012.
