QE (quantitative easing), QT (quantitative tightening), money supply, interest rates, and inflation are all interrelated concepts in the field of macroeconomics.
QE and QT refer to the actions taken by central banks to increase or decrease the money supply in an economy. When a central bank engages in QE, it purchases government bonds or other securities from banks and other financial institutions, increasing the amount of money in circulation. This is done to stimulate economic growth by making it easier for businesses and individuals to obtain credit and spend money.
Conversely, when a central bank engages in QT, it sells government bonds or other securities to banks and other financial institutions, reducing the amount of money in circulation. This is done to control inflation, as reducing the money supply makes it more difficult for businesses and individuals to obtain credit and spend money, which can help to slow down inflation.
The money supply refers to the total amount of money in circulation in an economyand changes in the money supply can have a significant impact on inflation and interest rates.
Interest rates are the cost of borrowing money, usually expressed as a percentage of the amount borrowed. Central banks use interest rates as a tool to control inflation and encourage economic growth. When interest rates are low, it becomes easier and more affordable for businesses and individuals to borrow money, which can stimulate economic activity. Conversely, when interest rates are high, borrowing becomes more expensive and economic activity may slow down.
Inflation refers to the level of price for goods and services over time. An increase in prices can be caused by a variety of factors, including changes in the money supply, changes in demand for goods and services, and changes in supply chain and production costs. Central banks use a variety of tools, including QE and interest rates, to control inflation and maintain stable economic growth.
In summary, QE and QT are tools used by central banks to increase or decrease the money supply, which can impact inflation and interest rates. Interest rates are used by central banks to control inflation and encourage economic growth, while inflation refers to the rate at which prices for goods and services increase over time.
More information to follow FED’s role on credit in the economy