Now, the Fed is fighting inflation by raising its interest rate target range and is in the process of shrinking the Fed’s balance sheet, which is referred to as quantitative tightening (QT), by passively stopping the reinvestment in some maturing Treasury securities and agency mortgage-backed securities (MBS).
19  For more details on this event, please see Ihrig, Senyuz, and Weinbach (2020) and Board of Governors (2019b, para. 2). 19 Lopez-Salido and Vissing-Jorgensen (2023) provide a framework for understanding banks’ demand for central bank reserves and assess how much QT is feasible to maintain an ample-reserves environment.