Federal Reserve braces for the end of the second quantitative easing and is expected to increase interest rates in the near future in order to move toward tighter monetary policy. On April 4, 2011 the interest rate on two-year Federal Reserve note rose to 0.901% which is the highest level since May 2010. This indicates that the Federal Reserve might have already started implementing a new policy. Furthermore, declining unemployment rate supports the believe that the Federal Reserve will slow down its expansionary policy, decrease money supply, and focus its effort on preventing the inflation.
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I recently wrote a paper on the fears that the ending of Q2 will cause rapid inflation. Because of these fears, a Q3 has been talked about and thrown around by the Fed. I believe that it will be unnecessary as the market already knows the numerical implications on Q2 ending and has already taken the change into account. But I do agree that slowing down growth will be needed to ensure that inflation does not rise too rapidly, as a precautionary move.
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