Quantitative Tightening (QT)

During quantitative easing, a central bank buys large amounts of government bonds and other securities, crediting banks with new reserves and expanding its balance sheet. Quantitative tightening is the reverse: the bank stops replacing bonds that mature, so its holdings gradually shrink. Some central banks go further and sell bonds directly into the market, draining reserves faster.

The practical effect is a reduction in the money supply circulating through the banking system. When reserves shrink, borrowing typically becomes less plentiful and more expensive across the economy — from mortgage rates to corporate credit. Traders typically watch the pace of QT alongside the policy rate because both tools tighten financial conditions, but they work through slightly different channels.

A common confusion is treating QT as simply the opposite of a rate hike — it is not. Suppose a central bank holds $5 trillion in bonds and lets $50 billion mature each month without reinvesting; that monthly "roll-off" quietly removes money from circulation without any formal vote on interest rates. The two tools can run simultaneously or independently. You can track bond markets and central bank announcements on the bonds page and the economic calendar.