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Economists predict no immediate end to government debt purchases

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The latest incarnation of quantitative easing is ending at the end of June. However, economists say the Federal Reserve's $600 billion Treasury debt buying program, called QE2, may not be the last federal liquidity injection into the nation's monetary supply. Further, they say the removal of QE2 is not necessarily going to be a dramatic turning event. Economist Roger Meiners, a professor with the University of Texas at Arlington, says the day of reckoning has already come in a sense and some economists believe the government will have to continue buying debt regardless of whether or not it is referred to as quantitative easing. Several market observers say they expect a third round of government debt purchases. In an interview with HousingWire, Princeton economist Paul Krugman said he believes there should be a QE3, and that it should focus on private market debt purchases. "I'm in the boat the Fed isn't doing remotely enough," Krugman said. Both Krugman and Meiners expect any new government debt program to likely be much larger than previously seen. "It may be that the Fed is going to be buying up less than before, but that is doubtful because of government deficits," Meiners said. "I don't think there is going to be any choice but for the Fed to continue buying government debt." Earlier this month, the Fed released minutes from its latest open market committee meeting, which showed the FOMC beginning to contemplate a move away from expansionary policies like QE2. However, no exact timelines were given for the transition. After reviewing the minutes, analysts with Capital Economics estimated it will take more than a year before the Fed actually tightens its policies. Meiners also doesn't see a dramatic shift at the end of the month when it comes to the Fed buying government debt. "I would guess for the rest of the year, the Federal Reserve will continue to do exactly what they have been doing," he said. "I think the bigger problem is the long-term uncertainty that a lot of people feel — rightly or wrongly — that this is a house of cards, so we see many businesses holding off on making commitments because tax policies are up in the air." Write to Kerri Panchuk.

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