Quantitative Easing (QE)

A Federal Reserve policy of large-scale asset purchases, primarily Treasuries and MBS, to lower long-term interest rates and stimulate the economy when short-term rates are near zero.

What is Quantitative Easing (QE)?

The Fed has conducted four rounds of QE: QE1 (2008-2010, $1.75 trillion), QE2 (2010-2011, $600 billion), QE3 (2012-2014, $1.6 trillion), and QE4 (2020-2022, $4.9 trillion during COVID). Purchases are made through primary dealers, injecting reserves into the banking system, which peaked at $8.9 trillion in April 2022. For example, QE reduced 10-year Treasury yields by about 100 basis points during the Great Recession.

QE works by signaling commitment to low rates, reducing term premiums, and encouraging lending; studies show it boosted GDP by 3% and employment by 2 million jobs post-2008. However, it increased the Fed’s balance sheet from $900 billion pre-2008 to $7.2 trillion in 2025, raising concerns over asset bubbles in stocks (S&P 500 up 400% since 2009).

In 2025, with rates above zero, QE is not active, but the Fed holds $4.5 trillion in Treasuries and $2.3 trillion in MBS, allowing gradual runoff at $25 billion monthly for MBS.