Markets

What Is Quantitative Easing

Astron Team · 09/24/2026 · 6 min read

When a central bank wants to stimulate the economy but has already cut interest rates to very low levels, it needs another tool to put more money into circulation. That's where quantitative easing, better known by the acronym QE, comes in. Although it seems like a topic far removed from a trader's daily routine, QE decisions tend to move interest rates, exchange rates, and the price of stocks and bonds around the world.

This article explains what quantitative easing is, how it works in practice, and why a trader, even one trading assets seemingly unrelated to central banks, should keep an eye on this type of announcement.

What quantitative easing actually is

Quantitative easing is a monetary policy in which the central bank buys large quantities of government bonds and, in some cases, other financial assets, injecting new money into the financial system. Unlike a rate cut, which makes credit cheaper, QE works by directly increasing the amount of currency available at banks, aiming to stimulate lending, investment, and spending.

The logic is as follows: by buying bonds in large volume, the central bank pushes up the price of these bonds and lowers their yield (the so-called rate of return), which pushes investors to seek returns elsewhere, like stocks, real estate, or emerging markets. This flow of money chasing returns is one of the reasons QE tends to be associated with prolonged rallies in stock markets.

When central banks resort to QE

Quantitative easing usually shows up during severe economic crises, when cutting rates is no longer enough to stimulate activity. That was the case, for example, after global financial crises, when several economies' benchmark rates were already near zero and the economy still needed more stimulus.

The role of government bonds

Most of the purchases made in a QE program are government debt securities, but programs can also include corporate bonds and other assets, depending on the country and the severity of the crisis. The larger the volume purchased, the greater the expected effect on interest rates and liquidity.

QE's effects on markets

A quantitative easing program tends to generate a few characteristic effects: a drop in long-term interest rates, a weakening of the currency of the country running the QE (since there's more currency in circulation), and, often, a rise in stocks and other risk assets, as investors seek higher returns outside fixed income.

A simplified example helps visualize the mechanism: imagine a government bond that pays R$ 100 in annual return trading at R$ 2,000, a 5% annual yield. If the central bank buys this bond in large volume and its price rises to R$ 2,500, the same R$ 100 return now represents only 4% a year — lower yields, exactly the effect QE aims to produce.

• QE injects money into the economy by buying bonds on a large scale.
• It usually lowers long-term interest rates and weakens the local currency.
• It tends to favor risk assets, like stocks, over the medium term.
• The reverse process, withdrawing stimulus, is called quantitative tightening.

The reverse process: quantitative tightening

Just as easing exists, so does quantitative tightening, when the central bank stops buying bonds or starts selling them, reducing the amount of currency in circulation. This move usually has the opposite effect: long-term rates rise, the currency tends to strengthen, and risk assets can suffer, since money becomes scarcer and more expensive.

How to track this in practice while trading

You don't need to be an economist to follow QE, but it's worth following the official statements of the major central banks, especially the Federal Reserve in the United States and the European Central Bank, since decisions from these two tend to move currencies, global stocks, and even commodities.

When trading on a platform like Astron, it's worth treating these central banks' meeting calendar as a high-volatility event, similar to an important corporate earnings release. Pay extra attention to position size on announcement days, because monetary policy decisions can generate sharp price moves in either direction, and trading around these events demands extra risk management, never the expectation of guaranteed profit.