Quantitative easing
Creating new central bank reserves to buy assets — expanding the money supply when rate cuts are no longer possible.
In plain words
When a central bank cuts its policy rate to zero and still needs to stimulate the economy — as happened in 2008 and 2020 — it has exhausted its conventional tool. Quantitative easing is the unconventional alternative: the central bank creates new electronic reserves and uses them to buy assets, typically government bonds, from banks and other financial institutions. The sellers receive cash, which they can then lend or invest. The goal is to push down long-term interest rates (not just the overnight policy rate), encourage lending, and lift asset prices — making households and businesses feel wealthier and more willing to spend.
How it works in practice
The central bank credits the account of the seller's bank with new reserves. No physical money is "printed" — it is all electronic. The Bank of England explains the mechanics step-by-step. The ECB's Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) are described on the ECB website. The Fed's open market operations are documented by the Federal Reserve Bank of New York.
Why it matters for inflation
QE matters for inflation through the transmission mechanism: lower long-term rates → cheaper mortgages and business loans → more spending → upward pressure on prices. The empirical evidence from the 2009–2019 QE era was that the inflationary transmission was weaker than expected, because banks largely kept the new reserves rather than lending them out. The 2020 QE programmes, combined with large fiscal transfers directly to households, proved more inflationary — contributing to the 2021–2024 price surge. The IMF and BIS have extensive research on QE's real-world effects.
Common misreadings
QE is the same as "printing money"
QE creates bank reserves, not circulating currency. Banks hold the reserves at the central bank. The inflationary effect depends on whether banks lend those reserves out — which they largely did not after 2008.
QE is fiscal stimulus
QE is a monetary policy tool operated by the central bank. Fiscal stimulus is government spending funded by borrowing or taxation — a separate decision by the government. The two can operate simultaneously but are distinct.
Frequently asked questions
Does QE cause inflation?
QE expands the money supply, which in theory can be inflationary. In practice, QE after 2008 produced surprisingly little inflation because the new reserves mostly stayed in the banking system rather than circulating in the economy — a phenomenon sometimes called a "liquidity trap". The 2020–2021 QE programmes coincided with massive fiscal stimulus and supply disruptions, contributing to the 2021–2022 inflation surge, though economists debate the relative contribution of QE versus fiscal policy.
What is quantitative tightening (QT)?
Quantitative tightening (QT) is the reverse of QE: the central bank allows the bonds it bought to mature without reinvesting the proceeds, or actively sells them. This shrinks the central bank's balance sheet and reduces the money supply. The Fed began QT in 2022; the ECB began reducing its holdings in 2023. QT is considered a supplementary tightening tool alongside rate increases.
How large were the QE programmes?
At its peak, the Federal Reserve's balance sheet reached $9 trillion in 2022, up from $900 billion before the 2008 financial crisis. The ECB's balance sheet peaked at over €8 trillion. The Bank of England's reached £895 billion. These are tracked in real time: the Fed publishes weekly H.4.1 statistical releases, the ECB publishes weekly financial statements, and the BoE publishes its Asset Purchase Facility data.