Quantitative Easing (QE)
Plain definition
Large-scale purchases of government bonds and other securities by a central bank to inject reserves, lower long-term interest rates, and stimulate the economy when short-term rates are already near zero.
In economics
QE works through the portfolio channel: by buying long-term assets, the central bank pushes up their prices and pushes down long-term yields, easing mortgage and corporate borrowing costs. Critics warn it can inflate asset bubbles, widen wealth inequality, and complicate the exit when inflation returns.
Example
In 2020, with rates at zero and the economy collapsing, the Fed bought trillions in Treasuries and mortgage-backed securities. Long-term yields fell, mortgage refinancing boomed, and stock prices recovered, transmitting stimulus even though short-term rates could go no lower.
Quantitative easing is confused with ordinary open market operations and with 'printing money' for government spending. QE is far larger in scale and targets long-term rates at the zero bound; and the purchases are monetary operations, not direct financing of government deficits.