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MACROECONOMICS • Central Banking
Federal Reserve Quantitative Tightening (QT): Balance Sheet Reduction Mechanics
How the Fed's ongoing balance sheet runoff influences liquidity in overnight reverse repo markets and impacts long-duration Treasury yields.
By Dr. Evelyn Thorne, Ph.D. • Reviewed by Devon Patel, CFA • Updated Today
Key Takeaways
- Quantitative Tightening drains reserves from the banking system by allowing maturing bonds to roll off without reinvestment.
- Reverse Repo Facility (RRP) balances serve as the primary shock absorber before bank reserves feel contractionary pressure.
- Yield curve spreads widen as private capital steps in to absorb increasing Treasury issuance.
Key Macroeconomic Indicators
Fed Funds Target: 4.75% - 5.00%
10-Year Treasury: 4.24%
Core CPI (YoY): 3.3%
Unemployment Rate: 4.1%
Real GDP Growth (Q3): +2.8%
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