Swimming in Quantitative Easing

Written by: Shawn Teigen



What on earth is quantitative easing and why is Utah Foundation writing about it now?

Since the Great Recession, the U.S. Federal Reserve has pumped trillions of dollars into the economy from its bond-buying program – referred to as “quantitative easing.” The program will likely end in October.

How does quantitative easing spur economic growth? It is like watering your lawn from a wading pool. You pour additional water into the pool and the excess water – or money in this case – pours over the edge of the pool and onto the lawn – or into the hands of people looking for loans. The policy also reduces interest rates which spurs even more demand for loans. Watch this cool video for a more complete look at this analogy:


The United States government can issue debt through the Department of the Treasury. The debt instruments they use are commonly referred to as “Treasuries.” The Fed has been buying Treasuries – and mortgage-backed securities – under three quantitative easing programs since the beginning of the recession:

  • QE1 – Between December 2008 and March 2010, the Fed purchased $1,350 billion in mortgage-backed securities and debt, as well as well as $300 billion in Treasury securities.
  • QE2 – Between November 2010 and June 2011, the Fed purchased $75 billion in Treasury securities per month for a total of $600 billion.
  • QE3 – Since September 2012 the Fed has purchased $40 billion in in mortgage-backed securities and debt per month, and an additional $45 billion in Treasury securities per month since December 2012.

Take a look at the increase in securities held by the Fed under these quantitative easing programs:


In June 2013, the Fed considered scaling back – or “tapering” – QE3 to a total $65 billion per month. Within three trading days of the announcement, the Dow Jones dropped by 4.3%. The Fed then decided to postpone tapering the QE3 program.

On August 22, 2014, Fed Chair Janet Yellen said that “the economy has made considerable progress in recovering from the largest and most sustained loss of employment in the United States since the Great Depression” but that the “labor market has yet to fully recover.” What she didn’t say is whether the Fed would definitively allow its bond-buying practices to end in October.

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