The reverse of quantitative easing: a central bank shrinking its balance sheet instead of expanding it.
Quantitative tightening is the mirror image of quantitative easing: instead of buying bonds to push money into the financial system, a central bank lets the bonds it already holds mature without replacing them, or actively sells them, gradually shrinking its balance sheet and pulling money back out of the system. It tends to push longer-term interest rates up and can tighten financial conditions even without the central bank raising its main policy rate at all, which is why a shift toward tightening gets watched almost as closely as an actual rate decision.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.