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The Fed elected not to institute a third round of quantitative easing – popularly known as QE3 – earlier this week. But renowned bond investor Bill Gross insists that QE3 is still on the horizon.
Quantitative easing is a monetary policy through which the Federal Reserve prints money for the purpose of buying billions of dollars of Treasury bonds and mortgage-backed securities when interest rates are near zero. On Tuesday the Fed reiterated its intentions to keep interest rates near zero through at least late 2014. But a QE3 announcement did not follow.
Gross says it will soon. For those who don’t know, Bill Gross is manages PIMCO, the largest bond mutual fund in the world with $250 in assets. He’s one of the most respected figures in the bond world.
So when Bill Gross says that QE3 – and perhaps even QE4 – are still very much in the picture, people listen. Gross said that stocks have fallen and the economy has stagnated over the past few years when central banks have stopped their quantitative easing efforts.
What would a third round of quantitative easing mean for bond investors? According to Gross, the 30-year bull market for bonds is nearing an end. He implored investors to avoid long-term bonds as inflation expectations rise and the U.S. economy improves.
Though it’s still on hold for now, if Gross is right and QE3 does happen it may be enough of a kick in the pants to accelerate the U.S. economy’s recovery in a meaningful way.