What is Quantitative Tightening?

It’s been a big week for the Fed as it raised interest rates by 25 basis points to a new range of 4.75%-5%.

Now, quantitative tightening, or QT, might be a term you’ve recently heard amid all of the news surrounding the Fed and growing inflation. But what does it mean?

Quantitative tightening is when the Fed shrinks its balance sheet. They do this when the economy is in overdrive and inflation is running very hot.

Yahoo Finance’s Seana Smith breaks down quantitative tightening and how it can impact you.