Quantitative Tightening (QT)

Quantitative Tightening (QT) is a contractionary monetary policy tool used by central banks, such as the U.S. Federal Reserve, to reduce the size of their balance sheet by allowing government bonds and other assets to mature without reinvesting the principal, thereby draining excess liquidity from the financial system. This process directly reduces the supply of money and bank reserves, impacting interest rates and credit conditions to combat high inflation.