Quantitative Tightening

Quantitative Tightening (QT) is a contractionary monetary policy applied by a central bank to decrease the amount of liquidity within the economy. The reverse of Quantitative Easing (QE) which aims to increase money supply in order to stimulate the economy, QT’s main goal is to normalise interest rates in order to avoid increasing inflation as it becomes expensive to access money and reduces demand for goods and services in the economy. TQ was the Fed’s attempt to reduce its holdings after it bought huge amounts of debt during the 2008 Great Recession, that aims to reduce the size of the Fed’s balance sheet.