Stocks rally as market anticipates Fed decision on QE this evening

US TREASURY yields were yesterday close to their lowest levels since January 2009 on the back of expectations that the Federal Reserve will today restart its quantitative easing (QE) programme.

Ten-year treasury yields are at 2.6 per cent while five-year notes hit 1.2 per cent. Analysts expect the Fed to announce bond purchases of between $500bn (£311.7bn) and $1 trillion this evening, with most anticipating a gradual strategy over several months rather than a “shock and awe” approach.

However, it is not clear how much the market has priced in and therefore what effect any announcement will have on asset prices or the strength of the dollar. There also remains the question of whether the Fed will set an upper limit for purchases.

Ahead of the decision the dollar index fell from 78.1 to 77.3 while the S&P 500 rallied to close at 1,194, up 0.84 per cent from Monday’s close.

The price movements have prompted concerns that a restart of QE could spark asset price bubbles, capital flow imbalances and, when the US recovery speeds up, inflation.

Meanwhile, expectations of further QE in the UK are waning due to strong economic data and persistent above-target inflation.