ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Quantitative tightening (QT) is a contractionary monetary policy that is the reverse of QE. The government bonds and other assets that central banks have bought from the market through QE programs are held on their balance sheets, massively increasing their size.

Detailed explanation-2: -QE reduced long-term interest rates by driving down yields on the securities the Fed was purchasing, which led to lower interest rates throughout the economy. The reduction in yields on MBS translated to lower mortgage rates, stimulating housing demand. QE increased liquidity by increasing bank reserves.

Detailed explanation-3: -Quantitative easing entails the creation of new bank reserves that are used to purchase government bonds (for example, from pension funds). This increases bond prices, which reduces bond yields and lowers interest rates in the real economy.

Detailed explanation-4: -What do quantitative easing and tightening mean? Quantitative easing, or QE, refers to policies that substantially expand the size of the Fed’s balance sheet. Quantitative tightening, or QT, refers to the opposite-policies that reduce the size of the Fed’s balance sheet.