What is quantitative easing (QE)?
In one line: Quantitative easing (QE) is when a central bank creates money to buy large amounts of bonds, aiming to push down long-term interest rates and support the economy.
How it works, step by step
- The central bank's normal tool, the short-term interest rate, is already near zero.
- It still wants to support the economy.
- So it buys government bonds (and in the US, mortgage bonds) from banks and investors.
- Buying lifts bond prices, which pushes their yields down. See Bond yield.
- Lower long-term rates make mortgages and business loans cheaper.
The bank pays for the bonds with newly created money held as reserves. That's why QE is sometimes called "printing money," though no paper bills are involved.
The Fed's two big rounds
- After 2008: several rounds of bond buying from late 2008 into 2014.
- From March 2020: huge purchases during the pandemic.
The Fed's balance sheet (everything it owns) grew from under $1 trillion before 2008 to roughly $9 trillion by 2022. You can see the history on federalreserve.gov.
The reverse: QT
Quantitative tightening (QT) shrinks the pile. The central bank lets bonds mature without replacing them. The Fed ran QT from 2022 and stopped shrinking its Treasury holdings on December 1, 2025.
A simple example with numbers
Say a bond pays $40 a year and costs $1,000, a 4% yield. Heavy central bank buying pushes its price to $1,050. Now the yield is 40 ÷ 1,050 = 3.8%. Multiply that across trillions of dollars of bonds, and borrowing costs fall across the economy.
Why it matters
- Currencies: QE often weighs on that country's currency, since rates fall.
- Stocks: lower rates have tended to support stock prices.
- Mood: the start or end of QE is a big signal. Markets watch every hint, which is where Hawkish and dovish talk comes in.
A common mistake
Thinking QE means prices can only go up. QE changes conditions; it doesn't remove risk. Markets fell sharply in 2008 and 2020 even as QE began. Trade the chart you see, with a stop.
Questions
Does QE cause inflation?
It can add to it, but not automatically. After 2008, inflation stayed low for years despite QE. After 2020, inflation rose sharply alongside many other causes.
Do other central banks use QE?
Yes. The ECB, Bank of England and Bank of Japan have all used large bond-buying programs. The Bank of Japan started first, in the early 2000s.
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