QE, tapering and QT
How a central bank's bond buying works, how it is wound down, and how it reaches India
US Federal Reserve balance sheet as on 7 October 2026; other figures as dated on each slide
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room what they think 'the Fed printed money' means. Most answers describe notes being handed out. This deck replaces that picture with what actually happens: a central bank buys bonds and pays with bank reserves it creates.
Quantitative easing is a central bank buying bonds with money it creates for that purpose.
The usual aim is to pull down longer-term interest rates. Tapering slows the buying. Quantitative tightening lets the stock of bonds shrink again.
Trainer notes
Three words, one balance sheet. QE makes it grow, tapering makes it grow more slowly, QT makes it shrink. Keep returning to this sentence through the deck.
Three terms, one balance sheet
- QE
Quantitative easing
The central bank buys bonds in the market. It pays by crediting the seller's bank with reserves, which are deposits banks hold at the central bank. Its balance sheet grows.
Tapering
The central bank still buys bonds, but a smaller amount each month. Its balance sheet keeps growing, only more slowly. Tapering is not selling.
- QT
Quantitative tightening
The central bank lets bonds mature without replacing them, or sells them. Reserves are extinguished and its balance sheet shrinks.
Sources: Federal Reserve Board, 'Open Market Operations' (policy tools page); Federal Reserve Bank of New York, 'How the Fed Changes the Size of Its Balance Sheet', 10 Jul 2017.
Trainer notes
The Federal Reserve's own term for QE is 'large-scale asset purchases', and for QT 'balance sheet runoff' or 'reduction'. The Fed's QT so far has worked by not replacing maturing bonds, within monthly caps, rather than by outright sales.
Growing, slowing, shrinking
INVENTED CENTRAL BANK
A central bank holds bonds worth 1,000 (in billions of its own currency).
It runs QE, then tapers, then runs QT. All figures are assumed.
- QE: it buys 50 a month for 12 months. 50 × 12 = 600. Holdings rise from 1,000 to 1,600.
- Tapering: it buys 40, then 30, then 20, then 10, then stops. 40 + 30 + 20 + 10 = 100. Holdings rise to 1,700.
- QT: it lets 20 a month mature without replacement for 10 months. 20 × 10 = 200. Holdings fall to 1,500.
- After all three, holdings are 1,500. That is 500 above the start, even after ten months of QT.
Result: During tapering the balance sheet still grew by 100. Only QT made it smaller.
Illustration with an invented central bank and assumed figures. Not a description of any actual programme.
Trainer notes
The point to land is the middle step. People hear 'tapering' and assume the central bank has started selling. It is still buying; it is buying less each month.
The Fed's rounds, 2008 to 2025
| Period | What the Federal Reserve did | How it ended |
|---|---|---|
| Nov 2008 to 2010 | First announced 25 Nov 2008. Bought $1.25 trillion of mortgage-backed securities, $175 billion of agency debt, $300 billion of Treasury bonds. | Purchases completed by August 2010. |
| Nov 2010 to Jun 2011 | Bought a further $600 billion of longer-term Treasury bonds, at about $75 billion a month. | Completed in June 2011. |
| Sep 2012 to Oct 2014 | $40 billion of mortgage-backed securities a month, plus $45 billion of Treasury bonds a month from January 2013. No end date was set. | Tapered from January 2014. Ended October 2014. |
| Mar 2020 to Mar 2022 | At least $700 billion announced on 15 Mar 2020, then 'in the amounts needed' from 23 Mar 2020. Later, at least $120 billion a month. | Tapered from November 2021. Ended early March 2022. |
| Jun 2022 to Dec 2025 (QT) | Maturing securities were not replaced, up to a monthly cap: $47.5 billion at first, $95 billion from September 2022. | Ended 1 Dec 2025. Holdings had fallen $2.2 trillion. |
Sources: Federal Reserve press releases of 25 Nov 2008, 3 Nov 2010, 13 Sep and 12 Dec 2012, 18 Dec 2013, 29 Oct 2014, 15 and 23 Mar and 16 Dec 2020, 3 Nov 2021, 26 Jan and 4 May 2022, 29 Oct 2025.
Trainer notes
The market calls the first three rounds QE1, QE2 and QE3. The Fed cut its policy rate to a range of 0% to 0.25% on 16 December 2008 and again on 15 March 2020, which is why it turned to bond buying. The Fed also ran an earlier QT from October 2017, not shown here. QT was slowed twice before it ended: the Treasury cap was cut to $25 billion a month in June 2024 and to $5 billion from 1 April 2025. The $2.2 trillion fall is the Fed's figure for 1 June 2022 to 31 October 2025.
The Fed's balance sheet at six points
| Total assets ($ trillion) | |
|---|---|
| Sep 2008 | 0.92 |
| Oct 2014 | 4.49 |
| Mar 2020 | 4.24 |
| Apr 2022 | 8.97 |
| Dec 2025 | 6.54 |
| Oct 2026 | 6.75 |
Read the chart
- $0.92 trillion on 10 Sep 2008, before the first round. $4.49 trillion on 29 Oct 2014.
- $4.24 trillion on 4 Mar 2020. $8.97 trillion on 13 Apr 2022, after the pandemic purchases.
- $6.54 trillion on 3 Dec 2025, just after QT ended.
- $6.75 trillion on 7 Oct 2026, after nearly ten months of Treasury bill purchases.
Source: Federal Reserve statistical release H.4.1, total assets of all Federal Reserve Banks, for the Wednesdays named. Rounded to two decimals.
Trainer notes
Exact figures in $ million: 924,218; 4,486,754; 4,241,507; 8,965,487; 6,535,781; 6,747,560. The six dates are chosen to mark the start and end of each phase; the chart is not a continuous series. Total assets include items other than bonds, so the fall from April 2022 to December 2025 is not identical to the $2.2 trillion fall in securities holdings.
Case: the 2013 taper tantrum in India
May 2013: the signal
On 22 May 2013 the Fed Chair told the US Congress the Fed could 'increase or reduce the pace' of its purchases. Markets expected a reduction.
Foreign money left
Foreign institutional investors took about US$ 13 billion out of Indian equity and debt markets by August 2013, RBI reported.
The rupee fell
The RBI reference rate reached ₹68.36 to the US dollar on 28 August 2013. That was an all-time low at that point.
Bond yields rose
The 10-year government bond yield went from 7.12% on 24 May 2013 to a peak of 9.27% on 19 August 2013.
RBI responded
RBI raised the MSF rate by 2 percentage points in July 2013. The Fed's actual reduction began only in January 2014.
Sources: RBI Annual Report 2013-14, Chapter II (Economic Review); Fed Chair's testimony to the Joint Economic Committee, 22 May 2013; Federal Reserve press release, 18 Dec 2013.
Trainer notes
The lesson of the case is that the talk moved markets seven months before the Fed bought a single dollar less. RBI's report also points to India's own weaknesses at the time, so the Fed was the trigger, not the only cause. When yields rose, prices of existing bonds fell; see the deck 'Bond prices and yields'. This is one episode. It does not tell us what a later Fed move will do.
Where things stand
As on the dates shown. QT has ended; the Fed is not running QE. Check the dates before you quote these.
- FED TOTAL ASSETS
- $6.75 tnOn 7 Oct 2026. It was $8.97 trillion on 13 Apr 2022.
- FED POLICY RATE
- 3.75-4%Target range 3.75% to 4.00%. Raised 0.25 point on 16 Sep 2026.
- FED QT
- EndedRun-off stopped on 1 Dec 2025. Treasury bill purchases began 12 Dec 2025.
- INDIA 10-YEAR YIELD
- 6.95%6.94% GS 2036 at 6.9497% on 31 Aug 2026. RBI repo rate then 5.25%.
Sources: Federal Reserve H.4.1, 8 Oct 2026; FOMC statements of 29 Oct 2025, 10 Dec 2025 and 16 Sep 2026; New York Fed, 10 Dec 2025; FBIL G-Sec yields, 31 Aug; RBI MPC minutes, 19 Aug 2026.
Trainer notes
The Fed describes the Treasury bill purchases since December 2025 as 'reserve management purchases', made 'for the sole purpose of maintaining an ample supply of reserves over time' (Chair's opening statement, 10 Dec 2025). They are mainly in short-term bills, not long-term bonds. Its Monetary Policy Report of July 2026 put reserve balances at about $3.1 trillion. State the facts and stop: we do not predict the Fed's or RBI's next step. Market figures are shown with a lag of at least 30 days, in line with SEBI's norms on price data used for education.
How this reaches India
This describes the channels. It is not a forecast of what any future Fed decision will do.
Yields abroad change
When US long-term yields are low, some global investors look for higher yields elsewhere. When US yields rise, some of that money goes back.
Capital flows turn
Foreign portfolio investors buy or sell Indian shares and bonds. These flows can reverse quickly, as they did in 2013.
The rupee moves
Inflows mean dollars are sold for rupees, which supports the rupee. Outflows mean rupees are sold for dollars, which weakens it.
Indian yields react
Foreign selling of bonds, and RBI's own response to a falling rupee, can push Indian yields up. Prices of bonds already held then fall.
Take-away: RBI announced bond purchases too: ₹1 lakh crore under 'G-SAP 1.0' for April to June 2021.
Sources: RBI Annual Report 2013-14, Chapter II; RBI press release of 8 Apr 2021 on G-SAP 1.0 (announced in the Governor's statement of 7 Apr 2021).
Trainer notes
These channels work in both directions and are only some of the forces on the rupee and on yields. India's own inflation, growth, trade balance and RBI policy matter as well. RBI said the purpose of G-SAP was 'a stable and orderly evolution of the yield curve'; it did not call it QE.
If you learnt this from older material
What older decks say
- QE1 and QE2 are the news of the day.
- The Fed is about to taper, or has just begun.
- US interest rates are close to zero.
- QE puts money into people's hands to spend.
What holds now
- Two more rounds: 2012-14 and 2020-22.
- That taper ended in Oct 2014. A second ran from Nov 2021 to Mar 2022.
- Target range 3.75%-4.00% from 17 Sep 2026.
- The Fed pays for bonds with bank reserves.
Take-away: Since those decks were written the Fed has also run QT twice. The latest ended on 1 December 2025.
Sources: Federal Reserve press releases of 13 Sep 2012, 29 Oct 2014, 15 Mar 2020, 26 Jan 2022, 29 Oct 2025 and 16 Sep 2026.
Trainer notes
Older training material on this topic dates from 2010 to 2014 and describes events of that time as current. Anyone who learnt from it needs the second pandemic-era round, the 2022 to 2025 QT and today's policy rate.
Four things people get wrong
Misconception'QE is printing notes and handing them out.'
What is trueNo notes are handed out. The central bank buys bonds and credits banks with reserves. Households receive nothing directly.
Misconception'Tapering means the Fed is selling bonds.'
What is trueDuring tapering the Fed is still buying, only less each month. Its balance sheet keeps growing until the buying stops.
Misconception'QT has ended, so QE has started again.'
What is trueThe Fed's purchases since December 2025 are mainly of short-term Treasury bills. Its stated purpose is to keep bank reserves ample.
Misconception'The Fed decides what Indian markets do.'
What is trueIt is one influence among several. RBI's account of 2013 names domestic weakness alongside global uncertainty.
Trainer notes
On the third point: the Fed's balance sheet has grown since December 2025, from $6.54 trillion to $6.75 trillion, so it is fair for someone to ask the question. The difference lies in what is bought and why: short-term bills to maintain reserves, against long-term bonds to lower long-term yields.
Check yourself
Question 1: A central bank cuts its monthly bond purchases from 50 to 30. Is its balance sheet growing or shrinking, and what is this step called?
Answer: Growing, by 30 a month instead of 50. This is tapering. The balance sheet shrinks only under QT, when maturing bonds are not replaced or bonds are sold.Question 2: In the 2013 episode, what happened to the rupee and to the 10-year government bond yield in India? Give the figures and dates.
Answer: The RBI reference rate reached ₹68.36 to the US dollar on 28 August 2013. The 10-year yield rose from 7.12% on 24 May 2013 to 9.27% on 19 August 2013.Question 3: When did the Fed's latest QT begin and end, and what were its total assets on 7 October 2026?
Answer: It began on 1 June 2022 and ended on 1 December 2025. Total assets were about $6.75 trillion on 7 October 2026.
Sources and disclaimer
Sources for the figures in this explainer
- Fed total assets: Federal Reserve H.4.1 releases for the six dates shown on slide 6.
- Purchase rounds and tapering: Federal Reserve press releases, 25 Nov 2008 to 26 Jan 2022; Federal Reserve Board, 'Open Market Operations' (policy tools page).
- How purchases create reserves: Federal Reserve Bank of New York, Liberty Street Economics, 10 Jul 2017.
- QT and the position now: Fed releases of 4 May 2022, 29 Oct 2025, 10 Dec 2025 and 16 Sep 2026; Balance Sheet Developments, May 2026; Monetary Policy Report, July 2026.
- India in 2013: RBI Annual Report 2013-14, Chapter II. Fed Chair's testimony to the US Congress, 22 May 2013.
- G-SAP 1.0: RBI press release, 8 Apr 2021. India 10-year yield and repo rate: FBIL G-Sec prices/yields, 31 Aug 2026, and RBI MPC minutes, 19 Aug 2026.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).