Turn out the lights, the party IS over folks!
"Stocks slid to near session lows on Tuesday following comments from the presidents of the Atlanta and Chicago Federal Reserve Banks that the central bank could start reducing its bond-buying program as soon as September."
It will take the Fed 2-3 years to taper down to nothing. Of course, as you may or may not realize, they make huge profits on their holdings, which they send back to the government. Their cost of money is about .25%, so do the math. They buy 3.5% income for .25% expense, making them 3.25% profit on $3 trillion - or about $97.5 billion per year net. Last year they wrote a check to the government for over $100 billion. They have little incentive to cash all of this out - they make too much money.
A leading economist, Lacy Hunt, has argued (I think well) that all of the world's major economies are structurally weak, and not positioned to improve for the foreseeable future. Further, he explains that the bond investment community has been concerned that the continuation of QE will eventually create money inflation, and therefore have been selling, which explains the rise in long rates despite QE. His conclusion is that any tapering while the economies remain weak will see a relief rally in bonds that will continue until inflation (beyond a few commodities) becomes a threat.
In sum, Hunt's argument is that QE continuation will moderately act to suppress the longer rates (mortgages), but tapering will encourage bond and mortgage buying beyond the Fed's QE program size and lower the long rates.
QE is about injecting money into the system by creating money and then buying bonds. Because there are fewer bonds available people MUST do something else with the money. That is the real purpose of QE. Get the money out of bonds by reducing the amount available and getting it into something else. Stocks for instance. Because far more people actually are affected by stocks this helps the economy.