What is quantitative easing (QE)?
Short answer
Quantitative easing is a monetary policy tool in which a central bank creates reserves to buy government bonds or other assets at scale, aiming to lower longer-term interest rates and ease financial conditions.
How it works
Normally a central bank steers the economy through its short-term policy rate. When that rate is already close to its practical lower limit, the bank can instead buy assets, mostly government bonds, from banks and other investors. It pays by creating new central bank reserves, which expands its balance sheet.
Large purchases push up bond prices, which lowers yields. Lower long-term yields can reduce borrowing costs for households and companies and can encourage investors to move into other assets.
Who has used it
The Bank of Japan began a quantitative easing programme in 2001. The Federal Reserve began large-scale asset purchases after the 2008 financial crisis, the Bank of England started its programme in March 2009, and the European Central Bank launched its asset purchase programme in 2015. Several central banks expanded asset purchases again during the 2020 pandemic.
Quantitative tightening and trade-offs
Quantitative tightening (QT) is the reverse: the central bank shrinks its balance sheet by letting bonds mature without reinvesting or by selling them. Economists debate how large the effects of QE are and what its side effects may be, including effects on asset prices, inequality and future inflation. This page does not take a side or predict outcomes.