Part 3/12:
Officially, the process of quantitative tightening (QT)—which involves reducing the Fed's balance sheet—will conclude on December 1, 2023. From that point forward, the focus shifts from shrinking the balance sheet back to expansion. This transition raises critical questions about the future of the financial landscape and inflation dynamics.
Quantitative Easing: A Double-Edged Sword
To understand the implications, it's essential to understand what these terms mean. Quantitative easing (QE) is a process where the central bank injects liquidity into the economy by buying government securities and other assets, effectively flooding the system with money. Conversely, quantitative tightening (QT) involves selling assets or allowing them to mature, thereby draining liquidity.