What is Quantitative Easing?

Quantitative easing is a government monetary policy used to inject liquidity and increased lending into the system by expanding the federal balance sheet. The Federal Reserve will typically purchase government securities, thereby increasing the supply of dollars in the market. Their hope is that this will increase consumer spending and stimulate the sluggish economy.

During this unconventional process, the Fed walks a fine line of fueling the economy and creating inflation. However, with rates close to zero, this is usually not a problem.

Another result of quantitative easing is the devaluation of the currency. Because the money supply is now larger, each dollar is worth slightly less. This directly impacts the country's imports and exports in the following way: those who import goods are harmed by a weaker dollar and exporters benefit by increased demand for their less expensive goods.