I just realized that many people still have a vague understanding of what QE is and how it affects the market, so I decided to write this.

Simply put, what is QE that central banks often use? It is a process of quantitative easing — meaning the Fed injects money into the economy by purchasing financial assets like government bonds. When this happens, liquidity increases, interest rates decrease, and people are encouraged to borrow money for investment. The result is stimulated economic growth and rising stock markets.

Conversely, there is QT (quantitative tightening), which is the opposite: the Fed reduces liquidity by selling assets or not reinvesting. Interest rates rise, people become more cautious about borrowing, markets face pressure, and inflation slows down.

The main difference is the impact on asset prices. QE is what drives asset prices higher, benefiting the market. On the other hand, QT causes downward pressure on prices. Both have profound effects on interest rates, inflation, and overall economic activity.

What’s interesting is that the Fed has been implementing QT continuously over the past four years to control inflation. But since September last year, when it started cutting interest rates, the Fed officially shifted to QE policy. This is a positive signal for the market, indicating that the Fed is changing direction. Why is QE considered an optimistic move? Because it means liquidity will increase, helping the economy and assets grow. This can create opportunities for investors if they know how to use this information wisely.