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An unconventional monetary policy tool where a central bank purchases government bonds and other securities from the market to increase the money supply and lower interest rates.
QE is used when conventional interest rate cuts have been exhausted (rates near zero) but the economy still needs stimulus. The Federal Reserve conducted massive QE programs in 2008-2014 and 2020-2022, purchasing trillions in Treasury bonds and mortgage-backed securities. By buying these assets, the Fed pushes their prices up and yields down, lowering borrowing costs throughout the economy. QE also increases bank reserves, theoretically encouraging more lending. Critics argue QE inflates asset prices (stocks, real estate) disproportionately benefiting wealthy households, while supporters credit it with preventing deeper economic downturns.