Advantages Of Quantitative Easing

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Quantitative Easing

Controlling growth is one of the topmost challenges for Governments and central banks. They like to see just enough growth in an economy - not too much that could lead to inflation getting out of control, but not so little that there is stagnation.
One way in which they can control growth is by raising or lowering interest rates. Lower interest rates encourage people or companies to spend money, rather than save. But when interest rates are at almost zero, central banks need to adopt different methods - such as pumping money directly into the financial system.
This process is known as Quantitative easing (QE). To stimulate the economy, central banks use a this monetary policy, usually when standard monetary policy has
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This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.
In August 2007, the Federal Open Market Committee's (FOMC) target for the federal funds rate was 5.25 percent. A year later, with the financial crisis in full swing, the FOMC had lowered the target for the federal funds rate to nearly zero, thereby entering the unfamiliar territory of having to conduct monetary policy with the policy interest rate at its effective lower bound. The unusual severity of the recession and ongoing strains in financial markets made the challenges facing monetary policymakers all the greater.
In the height of the financial crisis in 2008, the Federal Open Market Committee decided to lower overnight interest rates to zero to help with easing of money and credit. Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labour market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market
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Federal Reserve System held between $700 billion and $800 billion of Treasury notes on its balance sheet before the recession. In late November 2008, the Federal Reserve started buying $600 billion in mortgage-backed securities. By March 2009, it held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes; this amount reached a peak of $2.1 trillion in June 2010. Further purchases were halted as the economy started to improve, but resumed in August 2010 when the Fed decided the economy was not growing robustly. After the halt in June, holdings started falling naturally as debt matured and were projected to fall to $1.7 trillion by 2012. The Fed's revised goal became to keep holdings at $2.054 trillion. To maintain that level, the Fed bought $30 billion in two- to ten-year Treasury notes every

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