Quantitative Easing (QE)

Central banks usually influence the economy by changing short-term interest rates. But when those rates are already close to zero and the economy still needs support, they may turn to quantitative easing.

By buying large quantities of bonds, the central bank pushes up their prices and lowers their yields. This reduces long-term borrowing costs for governments, businesses and households, including mortgage rates. It also puts money into the hands of the sellers, who may use it to buy other assets, such as corporate bonds or shares, which can support asset prices and make it easier for companies to raise money.

Quantitative easing was used extensively by major central banks after the 2008 financial crisis and again during the COVID-19 pandemic.

Supporters credit QE with helping to prevent deeper recessions. Critics argue that it inflated asset prices, benefiting wealthier people who own more assets, and made it harder to control inflation later. Reversing QE, by shrinking the central bank's holdings, is called quantitative tightening.