Quantitative Easing
Definition
A policy in which a central bank buys financial assets, often government bonds, to help lower longer-term interest rates and support economic activity.
Large asset purchases increase demand for the securities the central bank buys. That can raise their prices and lower their yields, which can help bring down longer-term borrowing costs. Central banks may use this tool when short-term rates are already low.
Example
A central bank buys $10 billion in government bonds. Its purchases can push bond prices up and yields down.
Canada
How can Bank of Canada bond purchases affect borrowing costs?
Purchases can raise bond prices and lower yields, helping ease borrowing conditions. For example, lower government bond yields can reduce a benchmark lenders watch when pricing longer-term loans.
Bank of CanadaUnited States
How can Fed bond purchases affect long-term rates?
Buying longer-term securities can put downward pressure on their yields and ease financial conditions. Lower Treasury yields can then influence the rates used to price other long-term debt.
Federal Reserve monetary policy guide