What Is Quantitative Easing and Tightening? QE and QT Explained

Quantitative easing (QE) is a central bank buying bonds with new reserves to push long-term rates down; quantitative tightening (QT) shrinks those holdings.

Both are balance sheet policies, used alongside the short-term policy rate rather than in place of it. This page covers how QE works mechanically, the channels through which it is meant to lower borrowing costs, how the Federal Reserve ran QE and then QT between 2008 and 2025, why technical bill purchases to manage bank reserves are treated as a different thing, and where the Fed's balance sheet shows up in Kresmion's data. It is descriptive throughout.

How quantitative easing works

A central bank sets a short-term policy rate, covered in the policy rate explainer. When that rate is already near zero, or when markets for longer-term debt stop functioning smoothly, the central bank can act on longer-term rates directly by buying securities in large amounts.

The purchase is paid for with central bank reserves. In the St. Louis Fed's words, central banks do this "by buying financial assets in exchange for reserves." The seller's bank receives newly created reserves in its account at the central bank, and the central bank holds the bond. Both sides of the central bank's balance sheet grow by the same amount: the bond on the asset side, the reserves on the liability side. Reserves are balances that only banks and a few other institutions can hold, which is why QE expands the central bank's balance sheet without printing banknotes.

The Federal Reserve Bank of New York describes the goal of the Fed's programs, officially called large-scale asset purchases, as "putting downward pressure on longer-term interest rates, supporting mortgage markets, and making broader financial market conditions more accommodative."

How buying bonds is meant to lower long-term rates

Two channels are cited most often.

• Portfolio balance. If the central bank removes a large amount of long-term bonds from the market, investors who still want that kind of asset compete for a smaller supply, and they accept a lower extra yield, the term premium, for holding it. A St. Louis Fed review notes that lower term premiums accounted for up to 70 percent of the measured effect of US and UK QE on long-term rates.
• Signaling. Large purchases tell markets the central bank expects to keep short-term rates low for a long time, which lowers the expected path of rates built into long-term yields.

Lower long-term rates then pass through to mortgage rates, corporate borrowing costs and the discount rates applied to other assets. How large those effects are, and how much of the move in yields QE explains, remains debated among economists.

The Fed's QE rounds and QT, 2008 to 2025

The Fed's total assets were about $0.92 trillion on 2 January 2008, according to its weekly H.4.1 balance sheet data. The rounds that followed, as described by the New York Fed and the Fed's press releases:

The first round and the pandemic purchases both began during US recessions as the NBER dates them, the one from the December 2007 peak to the June 2009 trough and the one from the February 2020 peak to the April 2020 trough; what a recession is covers how those dates are set. Total assets peaked at about $8.97 trillion on 13 April 2022.

Quantitative tightening reverses QE, and the Fed ran it by not replacing bonds as they matured or were paid down, rather than by selling them. Under the plan that started on 1 June 2022, principal payments were reinvested only to the extent they exceeded monthly caps, which began at $30 billion for Treasuries and $17.5 billion for agency debt and mortgage-backed securities, rising after three months to $60 billion and $35 billion. The Treasury cap was later cut to $25 billion from June 2024 and to $5 billion from April 2025, with the agency cap kept at $35 billion. Since June 2022 the Fed's securities holdings declined by more than $2.2 trillion, by the Fed's own count. On 29 October 2025 the Federal Open Market Committee (FOMC) decided to conclude that reduction on 1 December 2025, and from that date to reinvest principal from its agency securities into Treasury bills, a change in what it holds rather than in how much. Total assets were about $6.54 trillion on 3 December 2025.

Other central banks ran similar programs with their own designs. The Bank of England began QE in March 2009 and bought £895 billion of bonds in total; it decided to begin QT in February 2022, and it says QT can be done by not reinvesting maturing bonds, by actively selling bonds, or by a combination of the two.

Reserve management purchases are a different tool

Not every Fed purchase is QE. In mid-September 2019 overnight money market rates spiked as reserves fell sharply around a corporate tax date, according to a Federal Reserve staff note. In October 2019 the Fed began buying Treasury bills and said the actions were "purely technical measures to support the effective implementation of the FOMC's monetary policy, and do not represent a change in the stance of monetary policy."

The same distinction came back after QT ended. On 10 December 2025 the FOMC directed the New York Fed to make reserve management purchases, buying Treasury bills (or, if needed, Treasuries with three years or less to run) to keep reserves at an ample level, starting at about $40 billion in the first month's schedule. The difference from QE lies in the purpose and the maturity: short bills bought to keep the supply of reserves in line with demand, rather than long bonds bought to press down on long-term rates. Total assets were about $6.75 trillion on 23 September 2026, according to H.4.1 data, larger than at the end of QT. A balance sheet that grows is therefore not, on its own, evidence of QE.

Where the Fed's balance sheet shows up in Kresmion's data

Kresmion's macro regime engine includes a net liquidity input built from three weekly or daily Fed series: total assets on the Fed's balance sheet, minus the Treasury's cash account at the Fed, minus the balance in the Fed's overnight reverse repo facility. The engine scores how much that measure has changed over its last five readings against the usual size of such changes, and feeds the result into its liquidity factor, alongside the real yield, the dollar, a high-yield credit spread and a financial conditions index. The current regime label and score are on the free macro regime page, with the factor breakdown open to signed-in readers.

Signed-in readers can also follow the Fed's balance sheet, reserve balances, the reverse repo facility and the net liquidity series on Kresmion's liquidity dashboard. The free money markets page shows where overnight rates such as SOFR and the effective federal funds rate sit inside the Fed's policy corridor, which is where strains from scarce reserves showed up in September 2019.

Honest limitations

The size of QE's effect on yields comes from estimates that depend on the model and the period studied, and the effects of QT are measured on even fewer episodes. Net liquidity is a market shorthand, not an official Fed measure. Because it is total assets minus only two liabilities, it still includes currency in circulation and other items that are not liquidity available to markets, and it treats every dollar of change alike whatever its source. Kresmion's input measures the recent change in that shorthand against its own multi-year history, so it describes how unusual the latest move is, not the level of the balance sheet. The H.4.1 figures on this page are weekly levels on the dates stated and change every week.

Key takeaways

Frequently asked questions

Is quantitative easing the same as printing money?

Not in the physical sense. QE creates central bank reserves, which only banks and a few other institutions can hold, in exchange for bonds; it does not put banknotes into circulation. When the seller is not a bank, the purchase also creates an equal new bank deposit for the seller. Banks do not lend reserves out to the public; whether QE lifts wider spending depends on how lower yields and higher asset prices feed through.

What is the difference between QT and raising interest rates?

Raising the policy rate changes the price of overnight money directly. QT works through quantities: it shrinks the central bank's bond holdings and an equal amount of its liabilities, which can be bank reserves or, as at the Fed in 2022 to 2024, largely the balance in the overnight reverse repo facility. It tends to push longer-term yields higher at the margin. The two can run at the same time, as they did at the Fed in 2022.

Does the Fed sell bonds during QT?

No. In its 2022 to 2025 runoff the Fed let bonds mature or be paid down without reinvesting the proceeds, up to monthly caps, and made no outright sales. The Bank of England has sold bonds outright as part of its QT.

Is the Fed doing QE when its balance sheet grows?

Not necessarily. After QT ended on 1 December 2025, the Fed began buying Treasury bills to keep bank reserves ample, a purpose it describes as managing reserves rather than easing policy. Growth in total assets alone does not show which kind of purchase is happening.

Can Kresmion tell me whether QE will start again?

No. Kresmion describes the current state of the balance sheet, liquidity inputs and money market rates, and their history. It does not forecast central bank decisions.

This page is information, not investment advice.

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Source: Federal Reserve Bank of St. Louis, "Quantitative Easing: Lessons We've Learned" (2012), https://www.stlouisfed.org/publications/regional-economist/july-2012/quantitative-easing-lessons-weve-learned ; Federal Reserve Bank of New York, Large-Scale Asset Purchases, https://www.newyorkfed.org/markets/programs-archive/large-scale-asset-purchases ; Federal Reserve press release, 15 March 2020, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm ; Federal Reserve, Policy Normalization, https://www.federalreserve.gov/monetarypolicy/policy-normalization.htm ; Federal Reserve, FOMC statements, 1 May 2024, https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm , and 19 March 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20250319a.htm ; Federal Reserve, FOMC statement, 29 October 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20251029a.htm ; Federal Reserve, Implementation Note, 29 October 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20251029a1.htm ; Federal Reserve, Implementation Note, 10 December 2025, https://www.federalreserve.gov/newsevents/pressreleases/monetary20251210a1.htm ; Federal Reserve Bank of New York, Statement Regarding Reserve Management Purchases Operations, https://www.newyorkfed.org/markets/opolicy/operating_policy_251210a ; Federal Reserve, FEDS Notes, "What Happened in Money Markets in September 2019?" (2020), https://www.federalreserve.gov/econres/notes/feds-notes/what-Happened-in-Money-Markets-in-September-2019-20200227.htm ; Federal Reserve press release, 11 October 2019, https://www.federalreserve.gov/newsevents/pressreleases/monetary20191011a.htm ; Bank of England, Quantitative easing, https://www.bankofengland.co.uk/monetary-policy/quantitative-easing ; Federal Reserve H.4.1, total assets (WALCL, via FRED), weekly levels on 2 January 2008, 13 April 2022, 3 December 2025 and 23 September 2026, https://fred.stlouisfed.org/series/WALCL ; Kresmion macro regime engine (net liquidity input) and liquidity dashboard.

Kresmion Research.