Quantitative tightening

Quantitative tightening, often shortened to QT, is the reverse of quantitative easing. Instead of buying bonds to add liquidity, the central bank lets the bonds on its balance sheet mature without reinvesting the proceeds, or in some cases sells them outright, shrinking its balance sheet and draining reserves from the financial system over time.

Because quantitative tightening removes some of the liquidity that had been supporting asset prices during a period of quantitative easing, it tends to push longer-term interest rates higher and can pressure valuations across stocks and bonds alike, as the flow of cheap money that had been chasing riskier assets slows down.

Quantitative tightening usually runs quietly in the background compared to a headline rate decision, but a faster pace of balance sheet runoff, or a decision to speed it up or slow it down, can still move markets meaningfully, since it affects the broader supply of liquidity available to the financial system.