Quantitative easing as we know it is a kind of monetary policy use by the central bank of a country to stimulate the economy when other conventional methods are not working. This involves the central bank buying financial assets from the commercial banks using the money it creates newly. This is different from the otherwise buying/selling government bonds to influence market interest rates. The policy is designed to inject money directly into the economy, when there is a sharp fall in demand because of reduced spending.
Quantitative easying increases the reserves with the banks and also raises the prices of the financial assets.
Using this method, Federal Reserve is pledging to buy $40 billion per month until the economy improves (at the time of this writing).
Even though the idea is to stimulate the economy, it’s important to understand who really benefits from these actions.
In a recent report, the Bank of England has said that their own Quantitative Easing policies have mainly benefited the rich people of the country. As a consequence, it ends up increasing the income inequality and the consequent social tensions.
This is also alarming for the US. Quantitative easing increases the financial asset prices, and according to Fed’s data, the top 5% own upto 60% of the country’s individually held financial assets. This includes 82% of the stocks and upto 90% of the bonds.
So, any QE action by Federal Reserve will only really help the rich not the rest of America.