Money & Finance › The Fed, money supply & inflation › Quantitative easing (QE): buying bonds to push down rates
The Fed's balance sheet and quantitative tightening (QT)
Peak ~$9T 2022; QT ended Dec 2025· Concept
Fact, law or dataA rule, statute, definition or measured number.
The Fed's assets, mostly Treasuries and mortgage bonds, and its liabilities, mostly currency and bank reserves; QT shrinks it.
See it on the Money & Finance map →How it works
The Fed's liabilities are the currency in your wallet, banks' reserve accounts and the Treasury's checking account. QE swelled its assets from under $1 trillion in 2007 to a peak near $9 trillion in 2022. Quantitative tightening (QT) reversed this by letting bonds mature without replacing them, which drains reserves. QT ran from June 2022 until December 2025, shrinking the balance sheet to about $6.5 trillion; the Fed then resumed buying T-bills to keep reserves ample.
Why it matters
Its size affects long-term rates and market liquidity: shrinking it pushes yields up and tightens money even without a rate hike, which is why Kevin Warsh's push to shrink it matters.
Think of it like
QT is like letting leases expire without re-leasing: no dramatic sale, just steady shrinkage as maturities roll off.
Facts, rules and data
The Fed's weekly H.4.1 report, 'Factors Affecting Reserve Balances', released every Thursday; FOMC plans for QT published in 2022 and its end announced in October 2025.
Debates and risks
How small the balance sheet can safely get is debated; repo-rate spikes in late 2025 suggested reserves were already getting scarce.
Connections (4)
▸Quantitative easing (QE): buying bonds to push down rates expanded The Fed's balance sheet and quantitative tightening (QT)Fact, law or data
The connection
Every QE purchase adds a bond to the Fed's assets and an equal amount of new reserves to its liabilities. Three rounds after 2008 took total assets from about $0.9 trillion to $4.5 trillion; the 2020–22 pandemic round roughly doubled that again, to nearly $9 trillion.
When and why
QE1 began in November 2008, QE2 in 2010 and QE3 in 2012–14; pandemic QE ran from March 2020 to March 2022, all ordered by the FOMC.
How we know
The weekly H.4.1 balance sheet shows each step, including more than $4 trillion of Treasuries and mortgage bonds bought in 2020–22.
Debates and risks
Whether the Fed should have kept buying into early 2022 while inflation was already rising is widely questioned, including by some Fed officials.
▸The Fed's balance sheet and quantitative tightening (QT) is mirrored in M0, the monetary base: currency plus bank reservesFact, law or data
The connection
The monetary base, currency plus bank reserves, makes up most of the liability side of the Fed's balance sheet. When the Fed buys bonds it creates reserves, so the base grows; under QT reserves drain and the base shrinks. The base rose from about $0.8 trillion in 2007 to over $6 trillion in 2021.
When and why
Fed balance-sheet data since 1914; the St. Louis Fed charts the monetary base back to 1959.
How we know
It is accounting: the Fed's assets equal its liabilities plus capital, and currency and reserves are most of those liabilities.
Debates and risks
A far bigger base after 2008 did not bring the inflation monetarists expected, because banks held reserves idle; whether 2020 was different is debated.
▸Kevin Warsh, Fed chair since May 2026 has long pushed to shrink The Fed's balance sheet and quantitative tightening (QT)Fact, law or data
The connection
Warsh has argued since 2010 that QE distorted markets, helped Wall Street more than Main Street, and blurred the line between monetary and fiscal policy. He has proposed a much smaller balance sheet, saying that could make room for lower policy rates, a trade-off many economists question.
When and why
His 2010 speeches as a governor, his 2011 departure after doubts about QE2, op-eds and interviews through 2025, and his 2026 confirmation hearing.
How we know
His Wall Street Journal op-ed of November 2010 and later speeches and interviews state the view directly.
Debates and risks
How fast he can shrink it without straining the repo market, which showed stress in late 2025, and whether it really permits lower rates, are debated.
▸Dollar plumbing: bank reserves, the TGA and the Fed's reverse repo sits on the liability side of The Fed's balance sheet and quantitative tightening (QT)Fact, law or data
The connection
Reserves, the TGA, the reverse repo facility and currency are the Fed's liabilities; Treasuries and mortgage bonds are its assets. When QT shrank assets from 2022 to 2025, liabilities had to shrink too: first the reverse repo drained, then reserves began to fall, which is why the Fed ended QT in December 2025.
When and why
On the Fed's books, reported every Thursday in the weekly H.4.1 release.
How we know
H.4.1 data show the reverse repo falling from $2.55 trillion to near zero as QT proceeded, before reserves declined.
Debates and risks
How large the balance sheet must stay to keep reserves ample, and whether to shrink it further, is debated within the Fed.