what is qt in finance

Quantitative Tightening (QT) is a monetary policy that contracts or reduces the Federal Reserve System (Fed) balance sheet. It is the opposite of Quantitative Easing (QE), which refers to monetary policies adopted by the Fed that expand its balance sheet. The Fed implements QT by either selling Treasuries (government bonds) or letting them mature and removing them from its cash balances. The main focus of QT is to reduce the amount of money in circulation to contain the escalating inflationary forces. The process by which it is done invariably results in higher interest rates. The risk of QT is that it has the potential to destabilize financial markets, which could trigger a global economic crisis. The direct impact of QT is likely to be significantly less than the impact of QE.