From QE to QT: The Fed's Two Secret Weapons That Move the Financial World
Behind every market turmoil, a strengthening dollar, or a rise in gold prices, there are two important terms that often come under the spotlight of global market players: Quantitative Easing (QE) and Quantitative Tightening (QT). Both are key monetary policies used by central banks, particularly the Federal Reserve (The Fed), to maintain the balance of the United States economy and influence the direction of global markets.
Quantitative Easing (QE): When the Fed Prints Digital Money
Quantitative Easing policies are implemented when the economy slows or faces a recession. In these situations, the Fed will print digital money and use it to purchase financial assets such as government bonds or corporate debt from the market.
The goal is to increase liquidity, lower long-term interest rates, and encourage credit and public consumption. With more money in circulation, businesses can more easily obtain financing, while investors tend to shift to riskier assets like stocks and gold.
QE policies were implemented extensively during the COVID-19 pandemic, when the Fed injected trillions of dollars into the market to contain The crisis resulted in a rapid recovery of the US economy—but a side effect was a sharp rise in inflation in the following years.
Quantitative Tightening (QT): When the Fed Pulls Back Its Money
Unlike QE, Quantitative Tightening (QT) is a policy implemented to reduce the money supply. This involves the Fed selling back previously purchased assets or allowing existing bonds to mature without being extended.
The goal is to suppress inflation and normalize the balance sheet after a period of significant expansion. However, this policy often causes market volatility, as liquidity decreases, interest rates rise, and investors tend to shy away from risky assets.
The impact was immediately felt in global markets: gold and stock prices tended to weaken, while the US dollar strengthened due to the reduced money supply in the financial system.
Two Balancing Policies
QE and QT are like two sides of the same coin in modern monetary policy. QE is implemented to stimulate growth, while QT is implemented to maintain price stability. Both have a significant impact on commodity, stock, and exchange rate movements worldwide.
Currently, analysts expect the Fed to remain cautious in balancing easing and tightening, especially amid the threat of a US government shutdown, a global slowdown, and unabated geopolitical tensions.
In other words, every time the Fed talks about QE or QT, the world moves—including the prices of gold, the dollar, and even crypto assets.
Source: Newsmaker.id
