What Is QE3 (Quantitative Easing)?

Investing News

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.

Articles You May Like

What You Need to Know About Q3 Earnings
The pros and cons for investors of nonstop trading as NYSE looks to go 22 hours a day
Ceramic mugs, condiment bars and comfier seats are coming to more Starbucks stores, as new CEO looks to re-caffeinate sales
Cruise lines are having a moment as a popular — and cheaper — alternative to hotels
Big Tech Earnings Put AI’s Profit Potential on Full Display