BOSTON (TheStreet) -- When QE2 set sail, the quantitative easing move by the Federal Reserve -- buying roughly $600 billion of Treasuries over the next nine month -- was intended to calm economic waters by lowering long-term interest rates.
But while home buyers and corporations may stand to benefit, many retirement plans could take a hit, especially those with a large exposure to bonds and bond funds.
|For some, the Federal Reserve's QE2 plan -- short for Quantitative Easing -- looms as large as the QE2 itself, or the Queen Elizabeth II cruise liner.|
David Kelly, chief market strategist at JPMorgan Funds (JPM) , is no fan of the Fed's move.
(JPM) "Investors need to be sure they recognize that the Federal Reserve is manipulating and twisting the bond market," he says. "The problem with this sort of morphine drip of quantitative easing is what happens when they remove it and what the hangover is."
"There are a lot of different scenarios here, but they all have one thing in common -- they end badly for the bond market," he adds. "If the Federal Reserve pulls out sharply at the end of this, and goes cold turkey, you could see a big jump in long-term interest rates. If they try to extend the process by coming out with a QE3, then eventually it is going to lead to inflation, and that's bad for the bond market.