Remember the description of quantitative easing which was a large ($600
billion) purchase of long-term treasury securities over time. Asset
purchases like these lower long term interest rates relative to where
they would otherwise be in the absence of these purchases and they
support home and stock prices.
Both of these channels encourage spending and investment by consumers
and businesses. Increased demand for goods and services promotes the
hiring of new employees, pushing down the unemployment rate. There
may also be a moderate change in the foreign exchange value of the
dollar that support net exports. Asset purchases protect against the
possibility of falling wages and prices which is defined as deflation.
Sheila McKinney
