Quantitative Tightening (QT)

Quantitative Tightening (QT) is when a central bank like the Federal Reserve shrinks its balance sheet by letting bonds mature without replacing them or selling off assets it bought during stimulus periods. Think of it as the opposite of quantitative easing (QE)—the money-printing strategy used during crises. When the Fed does QT, it removes money from the financial system, which typically makes borrowing more expensive and can cool down an overheated economy. You'll hear about QT during inflation-fighting cycles, and it matters because it affects interest rates, stock valuations, and how easily companies can borrow. For example, if the Fed stops reinvesting maturing bonds, less cash flows into markets, potentially pressuring stock prices.