Explained: Quantitative easing
Central banks, such as the Federal Reserve in the United States, wield considerable economic clout by setting crucial short-term interest rates, which influence the cost of business loans, among other things. Lower rates tend to spur lending, spending and economic expansion, while higher rates limit lending, thus curbing growth and inflation.Currently the economy — worldwide and in the United States — is showing sputtering growth. However, the Fed’s short-term interest rates are already near zero, making significant further cuts unrealistic. Given these circumstances, central banks, including the Fed, can try to spur growth through another financial tool, which is increasingly the subject of public discussion: quantitative easing.At its core, quantitative easing is the attempt by a central bank to inject more money into the economy and to keep long-term interest rates low through the purchase of large amounts of assets, often held by financial institutions. In March 2009, for instance,...