Quantitative Easing is a monetary policy program of the Central Bank. It is mostly practiced in developed countries, such as the US, Japan, European Union, and others.
Quantitative Easing was introduced first in the US after the global financial crisis in 2007-08. The global financial crisis hit the economy of the US terribly. To compensate for the tremulous fiscal instability, the US adapted the Quantitative Easing Policy.
Quantitative Easing is an expansionary monetary policy. Expansionary monetary policy aims at increasing the money supply in the economy.
The US Federal Reserve purchased government security in the form of bonds. When the US Federal Reserve purchased government securities, it gave dollars to the government. And that money moved into the economy- thus money supply was increased in the economy. In other words, the US citizens bought these bonds and paid to the Federal Reserve. Therefore, payments from the hands of the public meant that the money supply, the cash in hands of the public would reduce- it curbed the money supply in the economy. But through Quantitative Easing, the Federal Reserve aimed to increase the money supply in the market. In order to do this, the Federal Reserve purchased bonds from the government. As a result, the government hands more money, hence, increasing the money supply in the market. In short, through Quantitative Easing, the Federal Reserve of the US injected money into the economy. The impact of Quantitative Easing was- lowering interest rates- this led to more investment in the economy, and more loans were provided. So, more investment in the economy is equal to more growth. The intention of the Federal Reserve was to stimulate the growth of the US economy.
With the withdrawal of the Quantitative Easing on September 18th, 2013, the bonds of the US government were available for the general public. The US government bonds yielded high-interest rates and these bonds were highly liquid and low risks were associated with these bonds. As a result of this, the US companies would withdraw from emerging nations like India and would be invested back in their own country. This outflow of capital was especially FPIs- Foreign Portfolio Investments.
The Federal Reserve announced a $700+ billion QE program on March 15th, 2020 as stocks hit by stalling $2 trillion stimulus due to coronavirus. This follows an earlier pledge by the Federal Reserve to fund up $1.5 trillion to the overnight bank repo market and bond purchases to fight the economic slowdown.
The Federal Reserve’s Quantitative Easing program helped the US economy to get a boost of $2.7 trillion in excess reserves. According to several economists, the Federal Reserve’s QE initiative helped rescuing the U>S’s as well as the entire world economy after the world fiscal crisis in 2008.