Once the Federal Reserve’s latest round of quantitative easing (QE2) ends, interest rates will fall, says David Rosenberg, chief economist of Gluskin Sheff + Associates.

“Who picks up the slack if the Fed stops its bond-buying program?” Rosenberg said he is frequently asked in a report obtained by Business Insider.

“The answer is hardly complicated since we have a template for this in 2010,” Rosenberg writes.

David Rosenberg

“Last year, from April 23rd through to August 27th, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12 percent contraction as QE1 drew to a close.”

And what happened?

The yield on the 10-year U.S. Treasury note dropped to 2.66 percent from 3.84 percent, Rosenberg notes.

“So you see, the bond market actually does better — same was true during QE1 — without the Fed balance sheet expansion than with it. Why? Because the Fed’s real goal is to ignite investor risk appetite.”

Pimco star Bill Gross disagrees, saying the end of QE2 means higher interest rates.

The “25 basis-point policy rates for an ‘extended period of time’ may not be enough to entice arbitrage Treasury buyers, nor bond fund asset allocators to re-enter a Treasury market at today’s artificially low yields,” Gross writes in his latest investment outlook.

“Yields may have to go higher, maybe even much higher to attract buying interest.”