It's the question on everybody's mind, but unfortunately it's one without an easy answer. Quantitative easing (or "QE") is the U.S. Federal Reserve's policy of buying bonds - both U.S. Treasuries and mortgage-backed securities - in order to pump cash into the financial system and spur the economy. The Fed's QE policy has plenty of critics who say that it distorts the markets and weakens the U.S. dollar, but one group has benefited from the policy immensely: investors. The Fed's aggressive stimulus policies have supported performance for both bonds and stocks alike in the years since the 2008 financial crisis.
As a result, when Ben Bernanke & Co. about QE, investors listen. Unfortunately, much of the Fed's recent talk has been a steady stream of mixed messages. When the Fed announced its third round of QE last year, it guided investors to believe that the program would last indefinitely. Later in the year, it tied the continuation of the policy to the unemployment rate. Now, investors have a new set of comments to digest. Yesterday, the Federal Open Market Committee (the policy-setting body also known as the "FOMC") released the minutes of its January meeting. The minutes revealed quite a bit of debate about the future of QE, with some members of the committee considering an adjustment of the policy on a month-to-month or meeting-by-meeting basis, and others advocating that the program should be allowed to taper off entirely.
The FOMC meets again to decide the next steps with QE on March 20. As a result, investors are facing a month of uncertainty about the future of the policy - and if it's one thing the markets don't like, it's uncertainty. Look for further volatility across all of the financial markets in the weeks ahead as investors continue to question how much longer financial assets will have the tailwind of QE to support performance.