Quantitative Easing (QE)
A central bank's large-scale asset purchases that inject liquidity into the system and push down long-term interest rates.
Quantitative Easing (QE) is an unconventional monetary policy tool used when cutting short-term rates to zero is insufficient. The central bank creates new money to buy government bonds (and sometimes other assets like mortgage-backed securities), expanding its balance sheet and injecting liquidity into the financial system.
QE suppresses long-term yields, flattens the yield curve, devalues the currency, and pushes investors into riskier assets in search of return — a dynamic known as the "portfolio balance channel." QE programs from the Fed, ECB, and BoJ have been credited (and blamed) for the long bull market in risk assets post-2009.
On the desk
When the Fed launched "QE Infinity" in March 2020, its balance sheet expanded from $4T to nearly $9T by mid-2022. The S&P 500 more than doubled from its pandemic lows as cheap liquidity flooded the system.