Quantitative Tightening (QT) Data: How to Track the Fed Balance Sheet

What Is Quantitative Tightening?

Quantitative Tightening (QT) is the reverse of QE—the Fed shrinks its balance sheet by letting securities mature without reinvesting the proceeds, or actively selling assets.

Understanding QT is critical for:

• Fixed income investors
• Equity market analysts
• Liquidity and funding strategists
• Macro hedge funds

The Fed Balance Sheet Explained

Total Assets

FRED Series: WALCL | IQ Score: 98

The headline number. Fed assets peaked at $8.97 trillion in April 2022.

Components:

• Treasury securities (~$5T)
• Mortgage-backed securities (~$2.5T)
• Loans and other assets

Treasury Holdings by Maturity

The Fed holds Treasuries across the curve:

Why maturity matters: Shorter maturities = faster balance sheet reduction without active sales.

MBS Holdings

FRED Series: WSHOMCB | IQ Score: 97

Fed MBS holdings are "sticky" because:

• Prepayments slow when rates rise
• Principal repayment depends on refinancing activity
• Runoff is slower than Treasury runoff

Current MBS runoff: ~$15-20B/month vs cap of $35B

QT Pace and Caps

Current QT Parameters (as of late 2024)

Historical Comparison

QT1 (2017-2019):

• Peak pace: $50B/month
• Total reduction: ~$700B
• Ended early due to repo market stress

QT2 (2022-present):

• Peak pace: $95B/month
• Much faster than QT1
• Total reduction: >$1.5T so far

Key Data Sources

H.4.1 Release (Weekly)

The most detailed Fed balance sheet data.

Release: Every Thursday, 4:30 PM ET

What it includes:

• Securities held outright
• Loans to banks
• Repos and reverse repos
• Reserve balances

FRED Balance Sheet Series

Liquidity Indicators to Watch

Reserve Balances

FRED Series: WRESBAL | IQ Score: 97

Bank reserves at the Fed. Critical for funding markets.

Warning levels:

• Comfortable: >$3T
• Watching: $2.5-3T
• Concern: <$2.5T

Reverse Repo Facility (RRP)

FRED Series: RRPONTTSD | IQ Score: 96

Money parked at the Fed by money market funds.

Interpretation:

• High RRP = excess liquidity in system
• Declining RRP = liquidity being absorbed
• RRP near zero = potential stress ahead

Treasury General Account (TGA)

FRED Series: WTREGEN | IQ Score: 95

Treasury's checking account at the Fed.

Why it matters:

• TGA buildup drains reserves
• TGA drawdown adds reserves
• Big swings around debt ceiling events

QT Impact Analysis

On Interest Rates

QT puts upward pressure on term premiums:

• Reduces demand for long-term bonds
• Increases supply relative to private demand
• Estimates: 50-100bp on 10-year yield

On Bank Reserves

QT directly reduces reserve balances:

• Reserves = Assets - Currency - TGA - RRP
• Watch for signs of scarcity

On Repo Markets

The 2019 repo spike showed QT limits:

• Reserves became scarce in September 2019
• Fed had to restart asset purchases
• Lesson: Fed will slow/stop QT before crisis

Building a QT Dashboard

Weekly Tracking

• Total assets (WALCL) - headline

• Reserve balances (WRESBAL) - key metric

• RRP (RRPONTTSD) - liquidity cushion

• Treasury holdings by maturity

Monthly Analysis

• Actual runoff vs caps
• MBS prepayment speeds
• TGA and debt ceiling dynamics

Warning Signals

• Reserves below $2.5T
• RRP approaching zero
• Repo rate spikes
• Widening FRA-OIS spreads

Pro Tips

• Watch reserves, not total assets: Reserves are what matter for funding

• RRP is a buffer: QT impact cushioned while RRP > 0

• Debt ceiling complicates: TGA swings can dominate QT effects

• MBS runoff is slow: Don't expect caps to be hit

• Fed will be flexible: They'll slow QT before breaking things

Track all Fed balance sheet data →