Glossary · Defined term
Quantitative easing
Quantitative easing is central bank bond-buying aimed at lowering long-term rates and stimulating the economy when rate cuts are exhausted.
Last updated Oct 2, 2026
What it means
Quantitative easing, or QE, is a monetary policy tool in which a central bank buys government bonds and other securities to push down long-term interest rates and stimulate the economy. It is typically deployed when short-term rates are already near zero and conventional rate cuts have run out of room. The purchases expand the central bank's balance sheet and flood the financial system with reserves.
The mechanism works through asset prices. By buying bonds, the central bank drives their prices up and their yields down, which lowers borrowing costs across the economy and pushes investors toward riskier assets like stocks in search of return. Critics argue QE inflates asset bubbles and widens wealth inequality, since asset owners benefit most, while supporters credit it with preventing deeper downturns.
Unwinding QE, known as quantitative tightening, reverses the process: the central bank lets bonds mature or sells them, draining reserves and putting upward pressure on yields. Markets watch both the launch and the exit of QE programs closely, because shifts in central bank balance sheets have historically coincided with major moves in stocks and bonds.
An example
For illustration, a central bank announces it will buy bonds each month until the economy recovers. Bond yields fall on the news, mortgage rates follow, and stocks rally as investors expect cheaper money to support growth and valuations.