Quantitative easing (QE)
quantitative easing · QE
Quantitative easing (QE) is when a central bank, with little room left to cut rates, buys large amounts of government bonds and other assets to pump money directly into the financial system.
In plain terms
When a central bank has cut its policy rate close to zero and the economy still struggles, it turns to the quantity of money instead. It buys bonds such as government debt from banks and markets and pays with newly created reserves, adding money to the system. The Fed ran large QE programs after the 2008 financial crisis and during the 2020 pandemic.
Why it matters
Bond buying lifts bond prices and pushes long-term yields down, making it cheaper for companies and households to borrow. Critics say it can inflate asset prices and later fuel inflation. When it ends, the reverse process, quantitative tightening, usually follows.
How it connects to markets
- QE launched or expanded: lower long-term yields, usually supportive for stocks, property and crypto, and the currency tends to weaken
- Signals of tapering QE: long-term yields can jump and money can leave emerging markets