What is one effect of "quantitative easing"?

Quantitative easing (QE) is a monetary policy tool used by central banks to stimulate the economy when conventional monetary policy becomes ineffective, particularly when interest rates are already near zero. The central bank engages in QE by purchasing government securities and other financial assets from the market.

One significant effect of this asset purchasing is the decrease in interest rates. When the central bank buys these securities, it increases the demand for them, which typically pushes their prices up and yields (interest rates) down. Lower interest rates reduce the cost of borrowing for businesses and consumers, stimulating investment and spending, which can lead to increased economic activity.

Furthermore, decreased interest rates can encourage banks to lend more, as the lower yields make holding onto cash less attractive. This increase in lending can prompt additional investment and consumption, further supporting economic growth.