Quantitative Easing (QE) is a monetary policy tool where a central bank creates new money electronically and uses it to buy government bonds or other financial securities from the open market. The goal is to pump money into the economy when traditional methods — like cutting interest rates — are no longer enough.
When the central bank buys these bonds, it increases the money supply, lowers interest rates, and encourages banks to lend more freely. This makes borrowing cheaper for businesses and consumers, which ideally boosts spending, investment, and economic growth.
For example, after the 2008 financial crisis, the US Federal Reserve launched multiple rounds of QE, injecting over $4.5 trillion into the economy. The downside? Too much QE can lead to inflation, asset bubbles, and a weaker currency.