Money, created
Quantitative Easing
When interest rates are already near zero, a central bank can still push: it creates new money and uses it to buy bonds in huge amounts.
- $0.9 tnFed, mid-2008
- $8.97 tnFed peak, 2022
- $6.75 tnFed, 2026-10
- 2001Japan goes first
How it works
The central bank buys government and mortgage bonds from the market. It pays by crediting the sellers' banks with reserves, money that exists only as an entry in the central bank's own ledger and that it can create at will. Nothing is physically printed.
10
CB bonds
10
reserves
90
banks' bonds
Why it lowers interest rates
A bond pays fixed amounts. When a giant buyer bids its price up, the same payments give a smaller return, so long-term rates fall: on mortgages, company loans and government debt. Lower rates are meant to coax spending, borrowing and investment when short-term rates cannot go lower.
$100
price
3.00 %
yield
- P: the price you pay for the bond today
- C: the coupon: the fixed payment each year ($3 here)
- F: the face value repaid at the end ($100)
- n: years until it is repaid (10)
- y: the yield: the one interest rate that makes all of it add up to P
The Fed's balance sheet, in real numbers
Oct 2026
month
$6.75 tn
total assets
Does it work, and at what cost?
Most studies find QE lowered long-term yields and calmed panicked markets in 2008–09 and 2020; how much it helped jobs and growth is still argued. Reserves are not cash in people's pockets, which is one reason the feared inflation did not appear after 2008. Critics point to higher prices for shares and houses, which mostly helps those who already own them, and to central banks becoming the largest holders of their own governments' debt. Since late 2022 the Fed has paid more interest on reserves than it earns on its bonds, and books the shortfall as a deferred asset.
The old idea underneath is the quantity theory of money, which Copernicus sketched in 1526:
- M: the amount of money
- V: velocity: how many times each unit is spent in a year
- P: the price level
- Y: real output, the goods and services produced
QE raises M, but if banks sit on the reserves, V falls and prices need not move. That is roughly what happened after 2008.
Timeline
19 Mar 2001
The Bank of Japan, with rates already at zero, starts targeting the reserves it supplies: the first modern QE.
25 Nov 2008
Fed QE1: plans to buy $600 bn of mortgage bonds and agency debt after Lehman's collapse. In March 2009 it adds $300 bn of Treasuries and more mortgage bonds, $1.75 tn in all.
5 Mar 2009
The Bank of England cuts to 0.5 % and starts buying gilts, £75 bn at first; it reaches £895 bn by 2021.
3 Nov 2010
Fed QE2: $600 bn of Treasuries.
13 Sep 2012
Fed QE3: $40 bn a month of mortgage bonds with no end date, plus $45 bn of Treasuries a month from 2013.
4 Apr 2013
The Bank of Japan launches quantitative and qualitative easing, aiming to double the monetary base in two years.
May 2013
The 'taper tantrum': bond yields jump when the Fed hints at slowing purchases.
Oct 2014
Fed stops adding; its balance sheet sits near $4.5 tn.
22 Jan 2015
The ECB announces €60 bn a month of bond buying from March.
Oct 2017
Fed begins its first quantitative tightening, letting bonds mature without replacing them.
Mar 2020
Covid: the Fed buys in the 'amounts needed', about $1 tn in the first three weeks.
Apr 2022
Fed balance sheet peaks at $8.97 tn.
Jun 2022
Second QT begins as inflation runs at 40-year highs.
1 Dec 2025
The Fed ends balance-sheet runoff at about $6.5 tn.
Explanation only, not financial advice.
Sources
- Board of Governors of the Federal Reserve System, H.4.1 Factors Affecting Reserve Balances; FRED series WALCL (retrieved October 2026)
- Federal Reserve press releases: 25 Nov 2008, 18 Mar 2009, 3 Nov 2010, 13 Sep 2012, 15 and 23 Mar 2020, 29 Oct 2025
- Bank of England, Asset Purchase Facility
- Bank of Japan, monetary policy releases of 19 Mar 2001 and 4 Apr 2013
- European Central Bank, press release of 22 Jan 2015
- Ben S. Bernanke, The Courage to Act (2015)