Do Not Underestimate the Impact of Quantitative Tightening

Key Insights

  • Central banks are introducing quantitative tightening (QT) measures but appear to regard them as secondary measures that contribute little to active policy tightening.
  • Our analysis suggests that QT measures may have a much bigger impact on yields, output, and inflation than central banks expect.
  • This may result in central banks tightening more than necessary in order to bring inflation down, potentially exacerbating any recessionary dynamics.

Many central banks have begun introducing, or are at least discussing, quantitative tightening (QT) measures. Judging from their public communications, central banks intend these policies to run largely in the background and contribute little to active policy tightening. I believe their impact could be much greater than this, however—potentially sharpening bond market volatility and creating the risk that central banks tighten policy more than necessary.

QT is a more limited policy tool than quantitative easing (QE) in that it impacts economies in fewer ways. QE influences markets through six main channels: market stabilization, the reduction of uncertainty, policy signaling, exchange rates, portfolio rebalancing, and bank lending.

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T. Rowe Price
T. Rowe Price

T. Rowe Price is a global asset management firm with broad investment capabilities across Equity, Fixed Income, Multi-Asset and Alternative Strategies, highly committed to excellence in service and putting client interests first. We understand that insurers have many unique considerations impacting portfolio design, and we are proud to work with many of the largest insurers in the world delivering diverse and custom solutions designed to meet those needs. Our dedicated insurance relationship managers act as an extension of your team and serve as a conduit to the T. Rowe Price organization while proactively bringing the firm’s vast resources to bear. We offer a consultative, problem-solving approach and the ability to implement solutions based on specific client objectives, constraints, and risk tolerance.

Ben Riley, Brian Rapino
Senior Relationship Managers, Insurance
100 E Pratt Street
Baltimore, MD 21202

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