Glossary
Quantitative tightening (QT)
A central bank shrinking its bond holdings, usually by letting them mature without reinvesting, to reverse quantitative easing.
Quantitative tightening (QT) is the reverse of quantitative easing: a central bank reduces the stock of bonds it bought, draining reserves from the banking system. It is a slow, background form of tightening that works alongside interest-rate hikes. Instead of buying, the bank steps back from the bond market, so private investors have to absorb more government debt.
How it works
Central banks rarely sell bonds outright. The usual method is runoff: when a bond the bank holds matures, the government repays the principal and the central bank does not reinvest it, so the balance sheet shrinks and the reserves that paid for the original purchase disappear. The Federal Reserve sets monthly caps on how much may roll off.
The US experience
- 2017–2019. The Fed's first QT cut its balance sheet from about $4.5 trillion to roughly $3.8 trillion. It ended in August 2019. A month later, a spike in overnight lending rates showed that reserves had become scarce, and the Fed began adding them back.
- 2022–2025. Starting in June 2022, the Fed let Treasuries and mortgage-backed securities run off from a peak near $9 trillion, slowing the pace in 2024 and 2025. It announced in October 2025 that runoff would stop at the start of December 2025, with holdings still well above pre-pandemic levels.
Why it matters
QT tends to push long-term yields up at the margin, because the market must hold more duration. Its effects are hard to measure and arrive slowly, which is why central banks prefer to steer policy mainly with the Federal funds rate and run QT on autopilot. The main risk is draining reserves too far, which can disrupt short-term funding markets, as happened in 2019.