Quantitative Easing 2 - QE2
What Was Quantitative Easing 2 (QE2)
QE2 alludes to the second round of the Federal Reserve's quantitative easing program that tried to stimulate the U.S. economy following the 2008 financial crisis and Great Recession. Announced in November 2010, QE2 comprised of an extra $600 billion in purchases of U.S. Treasuries and the reinvestment of proceeds from prior mortgage-backed security purchases.
Figuring out QE2
Quantitative easing stimulates an economy through a central bank's purchase of government bonds or other financial assets. Frequently, central banks utilize quantitative easing when interest rates are zero or at close to 0% levels. This type of monetary policy increases the money supply and normally raises the risk of inflation. Quantitative easing isn't specific to the U.S. what's more, is utilized in different forms by central banks around the world.
QE2 came when the U.S. recovery stayed inconsistent. While equity markets had recuperated from 2008 lows, unemployment stayed high at 9.8% — two percentage points above Great Recession levels. The fundamental explanation for QE2 was to support bank liquidity and lift inflation. At the hour of the announcement, U.S. consumer prices had remained adamantly low.
Interest rates initially increased after the announcement, with the 10-year yield trading above 3.5%. Be that as it may, from February 2011, 90 days after the announcement, the 10-year yield started a two year decline, falling 200 basis points to trade under 1.5%.
The Impact of QE2
QE2 was relatively generally welcomed, with most financial specialists taking note of that while asset prices were set up, the soundness of the banking sector was as yet a relative unexplored world. It was under two years since the collapse of Lehman Brothers, and with confidence actually low, advancing investment through less expensive money was prudent. The policy was not without its faultfinders. A few financial experts noticed that previous easing measures had lowered rates however did relatively little to increase lending. With the Fed buying securities with money that it had basically made out of nowhere, many additionally accepted it would leave the economy helpless against wild inflation once the economy completely recuperated.
Two years later, the Federal Reserve left on its third round of quantitative easing (QE3), something that was not also received with many saying the Fed balance sheet had expanded to a generally grandiose level and the time had come to look for alternative strategies.
Highlights
- QE2 was a round of quantitative easing initiated by the Federal Reserve in late 2010 that expanded its balance sheet by $600 billion.
- Quantitative easing alludes to strategies a central bank can use to increase the domestic money supply through asset purchases.
- QE2 was followed by QE3 in September 2012.
- Central banks turn quantitative easing when interest rates are at or close to 0% levels.
