Does The Federal Reserve Print Out New Money?

Due to the beginning of the Great Recession, the Federal Reserve Bank has been buying U.S. Treasury bonds as it’s way of getting involved with expansionary monetary policy in order to promote economic recovery. The question becomes what money did they use to buy these securities? Does the Federal Reserve print out "new money?” The theory would be the Federal Reserve essentially has an unlimited supply of money. They write a check or do a wire transfer to the seller of the security however, no Federal Reserve account with funds in it somewhere is decreased as a result of the bond purchases. So how do they do it? It is called "quantitative easing" or in simpler terms, QE.

It is not true that Federal Reserve has an unlimited amount of money. It has reserves which it is used during the period of crisis/liquidity crunch to generate money in the economy. Through its tools of open market operation, the Federal Reserve manages monetary policies in the economy. To encourage investment/borrowing, the Federal Reserve lowers interest rates. To fight the impact the financial crisis in 2010, the

The new funds grow the size of bank reserves in the economy by the amount of assets purchased, consequently, "quantitative" easing. “Similar to lowering interest rates, the idea for QE is to revive the economy by encouraging banks to make more loans. Lower interest rates make it easier to borrow money, which spurs consumer spending and business investment.” “The banks take the new funds and purchase assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn improves investment.” The Federal Reserve usually would lower short-term interest rates instead of going through the trouble of buying up Treasury bonds, nevertheless those rates are already dancing at close to zero. (textbook page