How the Fed influences interest rates, at a glance

— The Federal Reserve's soon-to-end bond-buying program goes by the unwieldy term "quantitative easing." It involves having the Fed buy Treasurys from investors. Those purchases tend to push down long-term interest rates, or at least keep them low.

In normal times, the Fed focuses on short-term rates. It raises or lowers them by buying or selling Treasurys that banks hold on their books as reserves. To drive rates lower, the Fed buys Treasurys from banks. That gives the banks more money they can lend. And it drives down rates.

If the Fed wants to raise short-term rates through its normal operations, it sells Treasurys to banks. The banks pay for the securities with money they have on reserve. That reduces the money they have available for loans. Interest rates rise.

The "quantitative easing" process was dubbed QE2 because it followed a much larger QE1. The Fed launched QE1 in March 2009 at the depths of the Great Recession. It was an effort to further stimulate the economy after the Fed had already cut its target for short-term rates to a record low near zero.

The two quantitative easing programs have pushed the Fed's holdings of Treasury securities to a record high: $2.6 trillion.