Quantitative Easing [QE]

Quantitative Easing (QE) is an unconventional monetary policy tool where central banks purchase government bonds and other securities to inject money directly into the economy when standard policy (lowering interest rates) is insufficient. The central bank creates new money electronically to buy securities from commercial banks and other institutions, increasing bank reserves and lowering long-term interest rates. For example, between 2008-2014, the Federal Reserve purchased over $3.7 trillion in bonds through three QE rounds. The Bank of Japan pioneered QE in 2001, while the European Central Bank launched a €2.6 trillion program in 2015. QE aims to lower borrowing costs, increase asset prices, and stimulate lending and investment. Critics argue it can cause asset bubbles, increase inequality (as asset prices rise), and risk inflation. The Fed’s balance sheet expanded from $900 billion to $9 trillion through QE programs, requiring careful ‘tapering’ to avoid market disruption.