Quantitative tightening (QT).
In plain English
Quantitative tightening, or QT, is the Federal Reserve reducing the size of its balance sheet, the opposite of quantitative easing. During easing, the Fed bought large amounts of Treasury and mortgage bonds to push money into the financial system and hold down longer-term rates. In tightening, it reverses course, mainly by letting bonds mature without replacing them, which pulls money back out and can put mild upward pressure on longer-term rates. It works alongside changes in the Fed's main policy rate as another lever on financial conditions.
01Why it matters
QT drains money from the financial system and can nudge longer-term rates and asset prices, so it is part of how tight or loose overall conditions are, beyond just the headline interest rate.
02The math, step by step
Having bought bonds for years to ease conditions, the Fed can let those bonds roll off as they mature instead of reinvesting. That gradually shrinks its holdings and withdraws money from the system, the mirror image of the earlier bond-buying.
03What this is NOT
It is not the same as a rate hike. Raising the federal funds rate sets the short-term policy rate. QT changes the size of the Fed's bond holdings. Both tighten conditions, but they are separate tools that can be used together.
04Receipts
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