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. What is comparative advantage?

    Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it ... Read Answer >>
  2. How does the Wall Street Journal prime rate forecast work?

    Learn about the Wall Street Journal's prime interest rate methodology. Discover trailing financial indicators, and engage ... Read Answer >>
  3. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Answer >>
  4. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  5. How do you make working capital adjustments in transfer pricing?

    Understand how working capital adjustments are applicable to transfer pricing. Learn about the arm's length standard and ... Read Answer >>
  6. Does the IRS charge interest on penalties?

    Understand whether or not the IRS charges interest on penalties. Learn about the types of penalties that can be assessed ... Read Answer >>
Related Articles
  1. Fundamental Analysis

    4 Challenges China Faces According to PIMCO

    Get the latest thoughts from Luke Spajic, executive vice president and portfolio manager in Singapore for PIMCO, on challenges facing China's economy.
  2. Savings

    Do Big Soccer Tournaments Boost Market Performance?

    See why the conventional wisdom about the World Cup — that it boosts economic activity and helps local stock markets — is probably wrong.
  3. Economics

    8 Harmful Side Effects of Continued European Quantitative Easing (Q.E.)

    Read about eight harmful side effects of European Central Bank's decision to boost its quantitative easing (QE) program and push interest rates even lower.
  4. Investing News

    What to Expect at April's FOMC Meeting

    The Fed won't raise rates Wednesday, but it's worth paying close attention to Yellen's comments about the future trajectory of rates.
  5. Economics

    Do the Olympics Boost Market Performance?

    Learn about the economics of the Olympics, and why estimates about stock market boosts for the host country are probably incorrect.
  6. Economics

    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.
  7. Economics

    Goldman Sachs Expects Three Rate Hikes in 2016 (GS)

    Explore the factors surrounding the Fed's recent decision to forgo raising interest rates and uncover Goldman Sachs' prediction for future rate hikes
  8. Investing News

    AQR Capital Management: Investment Manager Highlight

    Discover the investment strategies and secrets of hedge fund powerhouse AQR Capital Management LLC in the alternative investment space.
  9. Economics

    Can Blockchain and Bitcoin Help the World's Poorest

    Bitcoin and blockchain is thought to have practical functionality in various industries, but can it alleviate poverty?
  10. Economics

    Understanding the Unemployment Rate

    The unemployment rate is the percentage of people in the labor force who are unemployed but seeking a job.
RELATED TERMS
  1. Quantity Theory Of Money

    An economic theory which proposes a positive relationship between ...
  2. Economic Cycle

    The natural fluctuation of the economy between periods of expansion ...
  3. Velocity Of Money

    The rate at which money is exchanged from one transaction to ...
  4. Oversold Bounce

    An oversold bounce is a rally in prices that occurs due to the ...
  5. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that decreased and ...
  6. Fiscal Deficit

    When a government's total expenditures exceed the revenue that ...

You May Also Like

Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center