The short version
- QE is buying securities in size; QT is letting them mature without replacement.
- QE expands the balance sheet on both sides — securities and reserves.
- QT is usually passive runoff, not selling.
- Both are tools for when the policy rate alone is not enough.
Why the balance sheet became a policy tool
When the policy rate is already near zero, the Committee cannot cut further to loosen conditions. Buying longer-dated assets is the alternative: it bids up their price, pushes down their yield, and lowers borrowing costs at maturities the short rate does not reach directly.
QE, mechanically
The Fed buys Treasury securities and agency mortgage-backed securities from dealers, and pays with newly created reserve balances. Both sides of its balance sheet grow: securities on the asset side, reserves owed to banks on the liability side.
This is the step most often described as “printing money”, which is imprecise enough to mislead. Reserves are not currency in circulation; they are balances banks hold at the Fed. Whether they translate into broader money growth depends on what banks do next.
QT, mechanically
Quantitative tightening is the reverse, but it works differently in practice. The Fed holds securities that mature on a schedule. Rather than reinvesting the proceeds, it allows a capped amount to roll off each month. The balance sheet shrinks and no asset is sold.
Two things follow from that. First, “the Fed is selling bonds” is usually wrong as a description. Second, the pace is bounded by what actually matures — if less than the cap matures in a month, the reduction is smaller, regardless of intent.
Reading the releases
The weekly H.4.1 release is the primary record of the balance sheet, published every Thursday. Its headline line is total assets; the composition beneath it shows which holdings are running off and how fast.
Sources
- 1.Federal Reserve Board, Credit and Liquidity Programs and the Balance Sheet. Retrieved Sep 1, 2026.
- 2.Federal Reserve Board, Factors Affecting Reserve Balances (H.4.1). Retrieved Sep 1, 2026.
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