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What Is Quantitative Easing (QE) ?

Tuesday, February 8, 2022

/ by Admin

What Is Quantitative Easing (QE) ?

Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. It also expands the central bank's balance sheet. When short-term interest rates are either at or approaching zero, the normal open market operations of a central bank, which target interest rates, are no longer effective. Instead, a central bank can target specified amounts of assets to purchase. Quantitative easing increases the money supply by purchasing assets with newly-created bank reserves in order to provide banks with more liquidity. 

KEY TAKEWAYS

  • Quantitative easing (QE) is a form of monetary policy used by central banks as a method of quickly increasing the domestic money supply and spurring economic activity. 
  • Quantitative easing usually involves a country's central bank purchasing longer-term government bonds, as well as other types of assets, such as mortgage-backed securities (MBS). 
  • In response to the economic shutdown caused by the COVID-19 pandemic, on March 15, 2020, the U.S. Federal Reserve announced a quantitative easing plan of over $700 billion.1 
  • Then, on June 10, 2020, after a brief tapering effort, the Fed extended its program, committing to buy at least $80 billion a month in Treasuries and $40 billion in mortgage-backed securities, until further notice.

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