Fed Ends Quantitative Easing

The Fed ended its re-investment program September 20, 2017 and effectively ended QE (Quantitative Easing). This means the Fed will no longer repurchase bonds with the funds they receive from maturities, and the Fed’s large bond portfolio will shrink gradually over time. The Fed ended QE because their assessment is that the economy is finally strong and healthy enough to not need this kind of stimulus anymore. So far, the stock and bond markets have not shown negative signs of the news.

The Federal Reserve Bank (Fed) began the Quantitative Easing (QE) program in the depths of the financial crisis. QE is a term that describes the practice of a central bank (the Fed) purchasing bonds in the open market for the purpose of stimulating the economy. There are two theoretical benefits of quantitative easing programs. The first potential benefit is that the investors selling the bonds to the Fed will reinvest their proceeds in other securities, which will increase the demand for those securities and stabilize security prices. The second potential benefit is that interest rates will decline because there is additional demand for bonds.