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. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  4. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  5. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>
  6. How can the federal reserve increase aggregate demand?

    The Federal Reserve can increase aggregate demand in indirect ways by lowering interest rates. Aggregate demand is a measure ... Read Full Answer >>
Related Articles
  1. Economics

    Calculating the Consumption Function

    The consumption function shows the level of consumer spending as it relates to disposable income.
  2. Fundamental Analysis

    Examining Mexico's Trillion-Dollar GDP

    Examining the gross domestic product growth and composition of Mexico, the second largest economy in Latin America
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  4. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  5. Credit & Loans

    Millennials Guide: Buying Your First House

    Millennial homebuyers need to research a lot of things, such as how much to pay, down payments, PMI, FHA loans and special programs for first-time buyers.
  6. Term

    Understanding Net Exports

    Net exports are the difference between a country’s exports and imports.
  7. Investing

    3 Reasons Why Countries Devalue Their Currency

    Ever since world currencies abandoned the gold standard and allowed their exchange rates to float freely against each other, there have been many currency devaluation events that have hurt not ...
  8. Mutual Funds & ETFs

    ETF Analysis: iShares 10-20 Year Treasury Bond

    Learn about the iShares 1-20 Year Treasury Bond ETF and its holdings, and understand why investors may be better served to look at other bond funds.
  9. Credit & Loans

    5 Signs a Reverse Mortgage Is a Bad Idea

    Here are the key situations when you should probably pass on this type of home loan.
  10. Active Trading Fundamentals

    The Top 5 Impact Investing Firms

    Learn what impact investing is and obtain information on some of the top impact investing firms ranked by total assets under management.
RELATED TERMS
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  2. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  3. Cost, Insurance and Freight - CIF

    A trade term requiring the seller to arrange for the carriage ...
  4. International Monetary Fund - IMF

    An international organization created for the purpose of standardizing ...
  5. Inflation

    The rate at which the general level of prices for goods and services ...
  6. Delivered Duty Unpaid - DDU

    A transaction in international trade where the seller is responsible ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!