Why QE3 is on tap

PIMCO's Bill Gross has been playing a game of poker with the Federal Reserve -- betting the central bank will pursue another round of bond purchases, which will push up the price of mortgage bonds and other risky assets. But with recent signs of an economic rebound in the world's largest economy, how willing will the Fed be to wade into bond markets yet again?

"I don't think that we need a whole lot of bad news -- the threshold for the Fed doing another round of quantitative easing is quite low," Aneta Markowska, U.S. Economist at Societe Generale, tells BNN.

"[The likelihood of another round of QE] is probably drawn in line with potential growth and as long as the Fed's forecast dips slightly below that threshold -- and that's about two and a half percent -- it would push the trajectory for unemployment projections higher. That would be enough for the Fed to justify another round of QE."

Markowska expects that a third round of quantitative easing will involve about $600 billion in bond purchases, which she says is unlikely to have a dramatic impact.

"There's probably a little room for further gain on risky assets on the back of QE3 but is has already been priced in to some extent," she says.