A:

"Quantitative easing" refers to steps that the U.S. Federal Reserve takes in attempting to boost the country's lagging economy. Historically, the Fed's main tool for spurring growth has been lowering short-term rates. However, QE employs expansionary monetary policy, which involves the purchasing of bonds when the interest rate can no longer be lowered.

In September of 2012, the Fed announced its third round of quantitative easing, often abbreviated to "QE3." The bank began buying mortgage-backed securities and Treasury bonds in late 2008 to curb mortgage rates and jumpstart the housing market. While many believe the efforts helped stop the economy's downward slide, anemic growth led to a second round of easing in 2010, followed by QE3 in 2012. This iteration involves the Fed buying an additional $40 billion in mortgage-backed securities each month until it sees improvement in the labor market.

The policy is not without its critics. Some economists note that previous easing measures have lowered rates but done relatively little to increase lending. With the Fed buying securities with money that it has essentially created out of thin air, many also believe it leaves the economy vulnerable to out-of-control inflation once the economy fully recovers.

RELATED FAQS
  1. In what instances is quantitative easing used?

    Discover when, how and why the Federal Reserve and other central banks turn to quantitative easing to stimulate economic ... Read Answer >>
  2. When the Federal Reserve Bank engaged in Quantitative Easing, did it add to M1?

    Learn how quantitative easing affects the money supply and what banks do when quantitative easing is in effect. Find out ... Read Answer >>
  3. What impact does quantitative easing have on banks in the U.S.?

    Read about the economic impacts of quantitative easing on banks in the United States. Find out why some are concerned about ... Read Answer >>
  4. How does quantitative easing in the U.S. affect the stock market?

    Read about the impacts of quantitative easing, or QE, on prices in the stock market, and learn some of the possible implications ... Read Answer >>
  5. How does quantitative easing in the U.S. affect the bond market?

    See why it is very difficult to evaluate the impact of the Federal Reserve's quantitative easing, or QE, program on bond ... Read Answer >>
Related Articles
  1. Investing

    How Quantitative Easing Affects the Labor Market

    The Federal Reserve used quantitative easing to aid economic growth. QE has impacted many areas, including the labor market, but are the effects good?
  2. Investing

    Does Quantitative Easing Work?

    The US, Japan, and now the EU have embraced quantitative easing. But what works for the economy of one country doesn't necessarily work for another's.
  3. Insights

    Not Crazy: Unconventional Monetary Policy

    Unconventional monetary policy, such as quantitative easing, can be used to jump-start economic growth and spur demand.
  4. Personal Finance

    How the Federal Reserve Affects Your Mortgage

    The Federal Reserve can impact the cost of funds for banks and consequently for mortgage borrowers when maintaining economic stability.
  5. Trading

    Quantitative Easing Report Card in 2016

    Find out why quantitative easing has not worked, despite the best efforts of the Federal Reserve, and how it has fueled the national debt problem.
  6. Insights

    Open Market Operations vs. Quantitative Easing

    How does the Fed's implementation of Quantitative Easing differ from its more conventional open market operations?
  7. Trading

    Does Quantitative Easing (Q.E.) Add to Inequality?

    Learn about quantitative easing (QE) and whether or not this new central banking policy tool plays a role in helping or hindering income inequality.
  8. Trading

    3 Times the FOMC Got It Right This Century

    Learn about three times that the Federal Open Market Committee (FOMC) and the Federal Reserve took positive steps to help the economy in the 21st century.
  9. Investing

    Quantitative Easing vs. Currency Manipulation

    In theory, quantitative easing and currency manipulation aren't the same thing, but it's much more difficult to tell one from the other in practice.
  10. Investing

    Are Central Banks Creating a New Bubble?

    The world's central banks have increased their balance sheets by four-fold since 2006 to $21.4 trillion, a third the size of the global economy.
RELATED TERMS
  1. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely ...
  3. Accommodative Monetary Policy

    When a central bank (such as the Federal Reserve) attempts to ...
  4. Residential Mortgage-Backed Security (RMBS)

    A type of security whose cash flows come from residential debt ...
  5. Quantitative Analysis

    A business or financial analysis technique that seeks to understand ...
  6. Tapering

    A gradual winding down of central bank activities used to improve ...
Hot Definitions
  1. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  2. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  3. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center