Glossary · Money and central banks
Quantitative easing
Quantitative easing (QE) is when a central bank creates new money to buy large amounts of bonds, pushing down long-term interest rates.
Also called: QE, asset purchases, bond buying, large-scale asset purchases
November 4, 2026
April 2022
August 2008
In plain words
Normally a central bank fights a slump by cutting its key interest rate. But what if the rate is already near zero? In 2008 the Fed hit exactly that wall. Its answer was quantitative easing, or QE: buying huge amounts of bonds with money it creates for the purpose.
Here is the trick. When the central bank buys a bond from a bank, it does not pay with banknotes: it simply credits the bank’s account at the central bank with new money, called reserves. The bond moves to the central bank, and fresh money appears in the banking system.
With a giant buyer in the market, bond prices rise and yields fall, so mortgages and company loans get cheaper even though the key rate cannot go lower. Investors who sold their bonds go looking for other things to buy, which lifts stocks and other assets too.
Example
A $100 billion purchase
- The Fed buys $100 billion of 10-year Treasury bonds from banks and investors.
- It pays by adding $100 billion of new reserves to banks’ accounts at the Fed. Nothing is printed; it is an entry on a computer.
- The Fed’s balance sheet grows by $100 billion on both sides: bonds on what it owns, reserves on what it owes.
- Studies of the first US round, about $1.75 trillion of purchases in 2009–2010, found it lowered 10-year yields by a third of a percentage point to a full point, depending on the study.
Then multiply. From $910B in August 2008, the Fed’s holdings grew to $8.97T by April 2022, 9.85 times as much.
One level deeper
The Bank of Japan tried it first, in 2001. The Fed ran rounds that markets called QE1 (from late 2008), QE2 (2010) and QE3 (2012), and an open-ended one in March 2020; the Bank of England started in 2009 and the ECB in 2015. Central banks bought government bonds, mortgage bonds and, in some countries, company bonds; the Bank of Japan even bought stock funds.
Is QE money printing? Partly. It creates new central bank money, but that money is bank reserves, which stay inside the banking system; it turns into spending money only if banks lend more or bond sellers spend. After 2008 lending grew slowly and inflation stayed low. In 2020–2021 QE came together with huge government spending, and inflation jumped. See money printing.
Its critics point to the side effects: higher prices of stocks and homes, which help those who already own them; governments borrowing cheaply for longer; and the difficulty of getting out. The way out is quantitative tightening.
The Fed’s balance sheet since 2003
The first jump, in late 2008, was emergency lending to banks and markets. The climbs that followed were QE: 2009–2010, 2010–2011, 2012–2014 and the steepest of all in 2020. The falls are quantitative tightening. The peak was $8.97T in April 2022.
The numbers behind the chart
| Date | Federal Reserve total assets |
|---|---|
| Jan 2003 | $725B |
| Dec 2010 | $2.39T |
| Dec 2020 | $7.32T |
| Dec 2022 | $8.57T |
| Dec 2023 | $7.73T |
| Dec 2024 | $6.89T |
| Dec 2025 | $6.57T |
| Nov 2026 | $6.75T |
Why it matters
QE is what central banks reach for when interest rates can go no lower, so it shaped the decade after 2008 and the response to 2020.
It pushes down long-term rates, which helps borrowers and governments, and lifts the prices of bonds, stocks and homes.
It left central banks owning a large share of their governments’ bonds, which makes them big players in markets for years afterwards.
A common mistake
Myth: QE means the central bank gives money away to people.
In fact: QE is a swap, not a gift: the central bank buys bonds and pays with reserves, so the sellers end up with money instead of bonds. Handing money to people directly, sometimes called “helicopter money”, would be a different policy.
Questions people ask
How does quantitative easing work?
The central bank creates new reserves and uses them to buy bonds from banks and investors. More demand for bonds lifts their prices and lowers long-term interest rates, which is meant to encourage borrowing, spending and investment.
Does QE cause inflation?
Not automatically. The 2009–2014 rounds came with low inflation, because the new reserves mostly sat in banks. In 2020–2021 QE came with very large government spending and broken supply chains, and US inflation reached 9.0% in the 12 months to June 2022.
How big is the Fed’s balance sheet now?
$6.75T on November 4, 2026, about 20% of a year’s US GDP. In August 2008 it was $910B.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Federal Reserve: total assets: Board of Governors of the Federal Reserve System, H.4.1 Factors Affecting Reserve Balances, series WALCL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Gross domestic product (current dollars): U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.5, series GDP; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.