Quantitative Easing (QE)
A monetary policy where central banks purchase securities to increase money supply and stimulate the economy.
Definition
Quantitative easing (QE) is an unconventional monetary policy tool used by central banks when traditional interest rate cuts are insufficient to stimulate the economy. The central bank creates new money electronically and uses it to purchase government bonds and other financial assets from the open market. This increases the money supply, lowers long-term interest rates, and encourages lending and investment. The Federal Reserve implemented QE extensively during the 2008 financial crisis and the 2020 COVID-19 pandemic, expanding its balance sheet to over $8 trillion. Critics argue QE inflates asset prices, increases wealth inequality, and risks future inflation. The reverse process is called quantitative tightening (QT).
Related Terms
Federal Funds Rate
The interest rate at which banks lend reserves to each other overnight, set by the Federal Reserve.
EconomyInflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power.
InvestingBond
A fixed-income debt instrument where an investor loans money to an entity for a defined period at a fixed interest rate.
EconomyRecession
A significant decline in economic activity lasting more than a few months.