Cadence Research · Reviewed 2026-07-30
What is quantitative tightening?
Quantitative tightening, or QT, is the process of reducing a central bank's balance sheet after asset purchases. A central bank usually does this by allowing bonds to mature without replacing all of them, though it can also sell assets. QT generally removes some support from financial conditions and is separate from decisions about the policy interest rate.
Why it matters
Two central banks with the same policy rate can have different overall settings if one is shrinking its balance sheet and the other is still buying or reinvesting assets.
How it appears in official communication
Officials set caps on how much can run off each month, explain reinvestment policy, and discuss reserves or market functioning. These details can change independently of rate decisions.
A common misunderstanding
QT does not automatically mean that the central bank is raising rates. It is a separate tool and can continue during periods when the policy rate is unchanged or falling.
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Related guides
Primary sources
- Policy normalization (Federal Reserve)
- Monetary policy (Bank of England)
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