Quantitative Easing (QE)
Quantitative easing is a monetary policy in which a central bank buys large amounts of bonds to push down long-term interest rates and support the economy.
When short-term rates are already near zero, a central bank cannot cut them much further. Under QE, the Federal Reserve creates reserves and uses them to buy Treasuries and mortgage-backed securities. This raises bond prices, lowers long-term yields and adds money to the financial system.
The goal is to make borrowing cheaper for households and businesses, ease financial conditions and encourage spending and investment. Lower yields also push investors toward riskier assets such as stocks and corporate bonds, which can lift their prices.
The Fed used QE on a large scale after the 2008 financial crisis and again in 2020. The opposite process, letting bonds mature without replacing them or selling them, is called quantitative tightening (QT) and tends to put upward pressure on long-term rates.
Critics argue that QE can inflate asset prices and widen wealth gaps, and that it may contribute to inflation if continued too long. Supporters credit it with preventing deeper downturns.