Quantitative Easing Explained Simply
When interest rates are already low, central banks may buy bonds to support the economy.
By Felix Narayan | Sep 15, 2026 | 7 min
Quantitative easing (QE) is a tool central banks used heavily after the 2008 financial crisis and during the COVID-19 pandemic.
It involves creating central bank money to buy financial assets, mainly government bonds.
I Why QE is used
Central banks normally influence the economy by changing short-term interest rates. When rates are near zero and the economy still needs support, QE is a way to push down longer-term interest rates and encourage borrowing and spending.
II How it works
- — The central bank creates new reserves
- — It uses them to buy bonds from banks and investors
- — Bond prices rise, and their yields fall
- — Lower yields reduce borrowing costs across the economy
III Effects and side effects
QE is generally credited with easing financial conditions during crises. Critics argue it raised asset prices such as shares and housing, which benefits people who already own assets. The link to inflation is debated and depends on circumstances.
IV Quantitative tightening
Quantitative tightening (QT) is the reverse: central banks reduce their bond holdings, either by selling bonds or not reinvesting when they mature. See our guide to what central banks do.
This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.
Further reading
- 1. Supply Chains: Why Disruptions Ripple Through the Economy
- 2. What Do Central Banks Actually Do?
- 3. What Causes Inflation? A Plain-English Guide