Definition
QE is an unconventional monetary policy tool used when short-term rates are already near zero. The central bank creates money electronically to buy government bonds and other securities, pushing their prices up and yields down. This lowers borrowing costs across the economy, supports asset prices, and encourages lending and investment. Critics argue QE inflates asset bubbles and increases wealth inequality.
lightbulb Example
The Fed's QE programs purchased over $8 trillion in bonds from 2008-2022. This drove mortgage rates to 2.5% historic lows, fueled stock market gains, and compressed credit spreads—but also contributed to asset price inflation.
verified_user Key Points
- Central bank buys bonds with newly created money
- Lowers long-term interest rates
- Used when conventional rates are near zero
- Critics: inflates asset bubbles and wealth inequality