2011-06-11

Federal Reserve is unlikely to launch a third round of quantitative easing, QE3

The Federal Reserve is unlikely to launch a third round of quantitative easing, QE3, in the near future, according to noted hedge fund manager David Tepper.

In an email to CNBC, Tepper – the head of Appaloosa Management – wrote that “If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they (the Fed) would reconsider. But there is no logic to QE3 now and the only result might be more food and energy inflation.”

Tepper gained notoriety by investing in financial stocks in 2009 and posting one of the top returns in the hedge fund industry that year. In September 2010, he reiterated his bullish outlook on the markets in a CNBC interview, saying that equities were in a win-win situation: an improvement in the economy would lead to a rally, or a worsening economy would lead the Fed to launch QE2.

Following his bullish call, the S&P 500 advanced over 25%, fueled in large part by the Fed’s second round of quantitative easing.

Currently, although the broader market has fallen over 6% since its April 29 peak, Tepper contended that there has not been “enough of a drop” to cause Chairman Bernanke and the Fed to reignite the printing presses.

Accordingly, he said he expects the weakness in the broader markets to continue. ”We (are) in a difficult investment environment,” he asserted. “Short and Sweet.”

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