Key points
- QE (quantitative easing): Fed buys assets, adds reserves, loosens financial conditions.
- QT (quantitative tightening): Fed lets assets mature, drains reserves, tightens conditions.
- Size affects money supply, interest rates, and asset prices.
Example
When Fed shrinks balance sheet by $100B/month (QT), reserves drain and short-term interest rates can rise even if fed funds rate unchanged.
In history
The Fed's balance sheet grew from about $900 billion in 2008 to about $4.5 trillion by 2015 through QE1-3, shrank to about $3.8 trillion by 2019, then jumped to about $7 trillion in 2020 and peaked near $9 trillion in 2022.
Related terms