Quantitative Tightening (QT)

Quan­ti­ta­tive tigh­tening or balance sheet contrac­tion. It is another mone­tary policy instru­ment used by central banks for regu­la­tion. Quan­ti­ta­tive tigh­tening (QT) invol­ves mone­tary policy measu­res that shor­ten the balance sheet of the US Fede­ral Reserve (Fed) either by selling govern­ment bonds or by allo­wing them to mature. This process redu­ces liqui­dity on the finan­cial markets and is inten­ded to control infla­tio­nary pres­sure and prevent the economy from over­hea­ting. It is the oppo­site of quan­ti­ta­tive easing (QE), in which the Fed takes measu­res to expand its balance sheet.