Latest Round of Quantitative Easing

The latest round of quantitative easing, also known as QE-II, came on November 3 after the two-day Federal Open Market Committee meeting with the announcement that Fed would print money to buy an additional $600b worth of treasury bonds by June 2011. The measure, aimed at making money available to borrowers, businesses and home buyers at a more affordable rate and stimulating the near-stalled economy, will help buy about $75b in treasury bonds each month for the next eight months. In addition to $600b asset purchase plan, the Federal Bank of New York will use $250b to $300b in additional money from its mortgage portfolio to buy the government debt over the same period of time (through June 2011).

The first round of asset-buying, also known as QE-I, began in November 2008 and March 2010, with Fed accumulating more than $1.7 trillion in its balance sheet. At present, the Fed has $2.3 trillion in its balance sheet, almost three times it had in December 2007, start of the Great Recession.

PROS of Quantitative Easing
Stimulates economy by availing money to businesses and consumers by driving down the long-term interest rates.

Helps U.S. exports by the drop in U.S. dollar.

CONS of Quantitative Easing
Propels run-away inflation.

Creates bubble in bond market.