QE2 — the Fed's program to create $600 billion out of thin air and buy Treasury bonds — is ending this month. Sort of.
The Fed isn't just going to let those bonds mature and be done with them. Instead, as we noted a few weeks back, the central bank will continue to buy new bonds as its existing investments mature.
Over the past few years, the Fed has bought roughly $2 trillion in bonds in two rounds of quantitative easing. Maintaining that level of investment will mean huge ongoing bond purchases.
In fact, the Fed will still be the biggest buyer of Treasury bonds, Bloomberg News reports this morning. In all, the Fed will spend $25 billion a month replacing maturing Treasuries and mortgage-backed bonds, Bloomberg says.
Ben Bernanke recently suggested that the Fed will keep reinvesting in new bonds until it decides that job market is in better shape.
Until then, the Fed's ongoing bond purchases, combined with the Fed's promise to keep short-term interest rates near zero "for an extended period," means monetary policy will still be super loose for the foreseeable future.
If you think unemployment is a bigger problem than inflation, that's good. If you think the threat of inflation is a bigger problem than unemployment, that's bad.