Quantitative tightening (QT) is the reduction of a central bank's holdings of bonds and other assets that it bought during earlier rounds of quantitative easing. A central bank can carry out QT passively, by not replacing bonds as they mature, or actively, by selling them before maturity. Either way, its balance sheet shrinks and the reserves that commercial banks hold at the central bank fall by a similar amount.
QT is the mirror image of QE but is not simply QE in reverse. Central banks usually treat it as a slow background process, while the policy interest rate, such as the federal funds rate or Bank Rate, remains the main tool for changing the stance of monetary policy. It is sometimes called balance sheet normalisation or balance sheet runoff.
Quantitative tightening in plain terms
During a crisis a central bank may buy huge quantities of government bonds, paying with newly created money. Years later it has a cupboard full of bonds it no longer wants. QT is the slow job of emptying that cupboard: some bonds are simply allowed to expire, and a few may be sold.
Each bond that leaves the cupboard takes the matching money out of the banking system with it. The result is a little less money sloshing around, slightly higher long-term borrowing costs, and a central bank that has room to buy again if the next crisis comes. The trick is doing it slowly enough that markets barely notice.
How QT works
When a bond held by the central bank matures, the government repays the principal. If the central bank does not reinvest it, the government must borrow that amount from private investors instead, who pay with their bank deposits; the banks' reserves at the central bank fall. Active sales have the same effect immediately. The supply of bonds that private investors must hold rises, which tends to push up long-term yields, mainly through the term premium.
Central banks usually announce caps, such as a maximum monthly amount allowed to run off, so the process is predictable. They also watch money markets for signs that reserves are becoming scarce, because banks need a cushion of reserves to make payments and meet liquidity rules. When reserves get too low, short-term rates such as repo rates can jump, as happened in the US in September 2019 at the end of the Fed's first QT round.
QT programmes since 2017
- Federal Reserve. The Fed ran a first QT from October 2017 to mid-2019. Its second round began in June 2022 and ended on 1 December 2025, after cutting its securities holdings by more than $2 trillion. It then started buying Treasury bills to keep reserves ample, slowed those purchases in mid-2026, and in October 2026 said it would buy bills "when appropriate".
- European Central Bank. The ECB stopped reinvesting maturing bonds from its asset purchase programme in July 2023 and from its pandemic programme at the end of 2024, a passive QT. It also let its long-term bank loans be repaid.
- Bank of England. It began QT in February 2022 and in November 2022 became the first major central bank to sell gilts actively. Its holdings fell from a peak of £895 billion to £488 billion by September 2026. On 17 September 2026 the Monetary Policy Committee replaced its annual targets with a multi-year plan to unwind the monetary-policy portfolio by 2034 at an average of £46 billion a year, including £20 billion of sales a year, with auctions paused while it settles how sales will be made.
Effects of QT
Estimating the effect of QT is harder than for QE, because it is announced well in advance and runs slowly. Studies by central banks generally find that the effect of QT on long-term yields is smaller than that of QE of the same size, partly because markets are calmer and partly because the announcements were anticipated. QT also reduces bank deposits and reserves, tightening liquidity at the margin, and can amplify the impact of rate rises on government bond markets. Combined with higher interest rates, it adds to the cost of servicing the national debt, because governments must sell more bonds to the private sector.
Risks and criticism
Supporters argue that QT restores room for future crisis action, reduces the central bank's footprint in markets and limits the political risk of a permanently large balance sheet. Some, including the Fed's chair Kevin Warsh before his appointment, have argued for a smaller balance sheet as a matter of principle.
Critics point to several risks. Draining reserves too far can cause money market stress, as in 2019. Selling bonds below the price paid crystallises losses that, in the UK, fall on the Treasury under the indemnity for the Bank's asset purchase fund. Others argue that QT and higher rates together tighten conditions more than intended, raising the risk of a credit crunch. There is also debate about how QT interacts with interest on reserves, since a smaller balance sheet lowers the interest central banks pay out. In the UK, the cost of QT for the public finances, and so for fiscal policy, has been examined by Parliament's Treasury Committee.