Key points
- Adds bank reserves, lowers long-term yields and encourages investors into riskier assets.
- Used when rates can't be cut further.
- Has historically narrowed term premiums and credit spreads.
Example
When the Fed announced $500 billion of mortgage-bond purchases in November 2008, US mortgage rates fell by about half a percentage point within weeks.
In history
QE1 (2008-2010) bought about $1.75 trillion of assets. In 2020 the Fed added about $3 trillion in three months.
Related terms