Recently, I’ve seen many people ask about QE and QT; these two concepts are really important for understanding the current market.

Simply put, QE is when central banks inject money into the economy by purchasing financial assets like government bonds. When QE occurs, liquidity increases, interest rates decrease, and people find it easier to borrow money for investment. As a result, the stock market usually rises sharply, and asset prices are driven higher.

Conversely, QT (Quantitative Tightening) is when the central bank withdraws money from the economy. They sell assets or do not reinvest in them, reducing liquidity and pushing interest rates higher. This slows borrowing, potentially cools the market, and helps control inflation.

The interesting part is that the Fed has been implementing QT continuously for the past four years, which has put pressure on the market. But by September last year, the Fed started cutting interest rates and shifted to QE policies, which is a very optimistic signal for the market. This change is significant because it marks a shift from tightening to easing.

Both policies directly impact inflation, interest rates, and overall economic activity. If you’re following the market, understanding QE and QT will help you better grasp the driving forces behind asset prices.