Quantitative Tightening (QT)
Beginner
What Is Quantitative Tightening (QT)?
Quantitative tightening (QT) refers to a monetary policy tool used by central banks to reduce the supply of money in the economy. Unlike quantitative easing (QE), which involves purchasing government securities to inject money into the economy, QT involves the selling of these securities from the central bank's balance sheet.
How Quantitative Tightening Works
When central banks engage in QT, they sell government bonds and other financial assets they acquired during periods of QE. By doing so, they “remove” money from the financial system, reducing the amount of money available for lending and spending. This action is taken to counteract inflationary pressures or to normalize monetary policy after periods of stimulus.