What happens when quantitative easing ends?

Quantitative easing has been keeping the UK and US economies afloat since the financial crisis began. But America's $600bn money-printing programme is due to expire in June. So what can investors expect when the money tap is turned off? James Ferguson explains.

Is the Western money-printing bonanza about to end? Speculation is rife that the US Federal Reserve will signal an end to quantitative easing (QE) at the next meeting of the Federal Open Market Committee (the US equivalent of our own Bank of England's interest-rate-setting Monetary Policy Committee) on 27 April. In other words, once the current $600bn purchase programme (QE2) expires in June, the Fed will not renew it.

QE2 came on top of the initial $1.75trn-bout of QE, where the Fed used 'printed' money to buy mainly mortgage bonds. QE2 instead focused on buying Treasury bonds (US government IOUs), mainly those maturing in five to six years' time. In all (assuming QE2 doesn't end early, which seems unlikely), it'll add up to about $2.35trn, or some 16% of GDP. That's similar in terms of relative size to Britain's home-grown version of QE.

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James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.