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How quantitative tightening drains liquidity

Quantitative tightening (QT) is quantitative easing in reverse: the central bank lets the bonds it bought mature without replacing them, and the money it created goes away.

How it works

When a Treasury bond held by the Fed matures, the Treasury repays it. If the Fed doesn’t reinvest, the Treasury has to raise that money from private investors instead, whose cash moves out of bank deposits. The result is fewer reserves in the banking system, or less cash in the reverse repo facility, and a smaller Fed balance sheet.

The 2022 to 2025 runoff

The Fed balance sheet peaked at US$8.97 trillion on 13 April 2022.
Runoff began on 1 June 2022.
The Fed slowed it from June 2024 (the monthly Treasury cap fell from US$60 billion to US$25 billion) and again from April 2025 (to US$5 billion).
Runoff ended on 1 December 2025, with the balance sheet at about US$6.55 trillion. In December 2025 the Fed began buying Treasury bills to keep reserves ample.

It is now US$6.75 trillion (28 October 2026). See the Fed balance sheet.

Why reserves held up

For much of this QT, the money drained came out of the overnight reverse repo facility rather than bank reserves. The facility peaked at US$2.55 trillion on 30 December 2022 and fell to near zero as money funds bought Treasury bills; it’s now US$5.1 billion. Bank reserves are US$2.89 trillion.

The lesson of 2019

The previous round of QT, from October 2017, ended on 1 August 2019. Weeks later, with reserves down to about US$1.39 trillion, overnight repo rates spiked (SOFR hit 5.25% on 17 September 2019) and the Fed had to inject cash. Ending QT before reserves get scarce is meant to avoid a repeat. See repo market stress.

Questions

Is the Fed still doing QT?

No. The Fed ended balance sheet runoff on 1 December 2025 and began buying Treasury bills in December 2025. The balance sheet is US$6.75 trillion as of 28 October 2026.

Does QT always reduce liquidity?

It reduces the Fed’s balance sheet, but how much it drains from markets depends on where the money comes from: reserves, the reverse repo facility, or offsetting moves in the Treasury General Account.

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General information only, not financial advice. Data can be delayed, revised or wrong. Sources and credits.