The European Central Bank is poised to launch a €1tn round of quantitative easing on Thursday, years after other world central banks embarked on monetary stimulus.
The Federal Reserve embarked on QE in November 2008 with the hope of steering the world’s largest economy through the depths of the financial crisis. When it was launched under then Fed chairman Ben Bernanke – dubbed “Helicopter Ben” for his desire to drop money out of the sky – it was, and remains, a contentious policy decision.
As the US backdrop steadily improved in the aftermath of the Fed’s cash injection, the central bank gradually slowed its bond-buying programme from $85bn a month to $15bn a month. After more than five years the Fed, now led by Janet Yellen, called time on its QE programme last October. But it committed to keeping record low interest rates for “a considerable time”.
Quantitative easing, coupled with low interest rates, freed up capital in the US and encouraged a steady rise in risk appetite, helping US shares prices to rise markedly since 2009.
QE also swelled the Fed’s balance sheet enormously. Its vast bond-buying programme took the balance sheet from about $870bn in August 2007 to $4.5tn today.
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