Quantitative Easing (QE)
A central bank policy of purchasing assets to inject money into the economy.
What is Quantitative Easing?
Quantitative easing (QE) is an unconventional monetary policy tool used by central banks when conventional interest rate cuts are insufficient. The central bank purchases large quantities of financial assets — typically government bonds and mortgage-backed securities — from commercial banks, injecting liquidity into the financial system and pushing down long-term interest rates. QE aims to stimulate lending, investment, and economic activity. Critics argue it inflates asset prices, exacerbates wealth inequality, and creates future inflation risk. The reverse process — selling assets or allowing them to mature — is called quantitative tightening (QT).
Example
The Federal Reserve launched three rounds of QE (QE1, QE2, QE3) between 2008 and 2014, expanding its balance sheet from under $1 trillion to $4.5 trillion, purchasing Treasuries and MBS to support the economy after the financial crisis.