Quantitative Easing (QE)
What It Is
Quantitative Easing is a large‑scale asset purchase program where the Fed buys long‑term Treasuries and mortgage‑backed securities to inject liquidity and lower long‑term interest rates.
Why It Matters
QE expands the Fed’s balance sheet, supports financial markets, and stimulates economic activity during downturns.
How It Works
- Fed purchases long‑term assets
- Increases bank reserves
- Lowers long‑term yields
- Boosts lending and investment
Key Components
- Treasury purchases
- MBS purchases
- Balance sheet expansion
- Forward guidance
Example
QE1, QE2, QE3, and QE during COVID‑19 stabilized markets and lowered borrowing costs.
Key Takeaways
- QE is used during recessions or crises.
- It influences long‑term rates, not just short‑term.
- It increases liquidity across financial markets.