Quantitative Tightening (QT)

Quantitative Tightening (QT) is when a central bank like the Federal Reserve shrinks its balance sheet by selling bonds or letting them mature without replacement. Think of it as the opposite of quantitative easing (QE)—the money-printing strategy used during crises. You'll hear about QT when the economy is strong and the Fed wants to reduce the money supply and cool down inflation. It matters because less money in the system can make borrowing more expensive and potentially slow economic growth, which affects stock valuations and investor sentiment. For example, if the Fed announces it's reducing its bond holdings by $60 billion monthly, that's QT in action—and markets often react nervously to the news.