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Quntitative easing is all over the news this week. Bond purchases are anticipated. Rising and falling interest rates are suggested.
The Federal Reserve Bank in the US bought bonds to help the country recover from the Great Recession. This is called “Quantitative Easing.” More money is put in circulation. Hopefully lenders are encouraged to issue more loans so business is stimulated.
The US Fed also lowered interest rates to almost zero.
Now the US Fed has stopped buying bonds, and they have signalled that at some time interest rates will rise. Signals are a way to let markets prepare for intended changes.
The European Union is more complicated because there is a central bank for all its member nations and then national central banks for each member state. It came as no surprise when Mario Draghi, the European Central bank’s president, announced this week that he would buy bonds. He did not suggest an interest rate rise.
The. Central banks of member nations will purchase most of the risky sovereogn (or nation-specific) bonds. These states are in.a position.to control their own economies and have a greater interest in seeing that the bonds do not default.
The real question in what’s called QE is the nature of the bonds purchased. And who is taking the risk?
Central European Bank Adopts Quantitative Easing
Former US Treasury Secretary Doesn’t Think QE Will Work in EU