What is ‘Quantitative Easing’?
- Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
- Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
- Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.
Fed tapering
- Fed tapering is the gradual reduction in the bond buying program of the US Federal Reserves.
- Tapering is the gradual winding down of central bank activities used to improve the conditions for economic growth.
- Tapering activities is primarily aimed at interest rates and investor expectations of what those rates will be in the future.
- These can include conventional central bank activities, such as adjusting the discount rate or reserve requirements, or more unconventional ones, such as quantitative easing (QE).
In layman terms, it can be said that in ‘Quantitative Easing , there is increase in dollar supply and in Fed tapering, there is decrease in dollar supply.
