Post-chocolate jeans, a crowded room, the Federal Reserve’s balance sheet – some things are known for being tight. But now thanks to quantitative easing, one of those is loosening, and it has nothing to do with Valentine’s Day treats or packed rooms, and everything to do with the future of your finances.
What Has the Fed Been Up To?
Since 2022, the U.S. central banking system, also known as the Federal Reserve or “the Fed”, has been pursuing Quantitative Tightening (QT), a strategy that reduces the amount of money circulating in the economy by selling government assets and securities.
This policy produces everyday consequences like:
- High interest rates
- Lower inflation
- A slower economy
- Tighter credit and fewer loan approvals
- Reduced consumer and business spending
Between you and me, the only thing I really love on that list is lower inflation. So, when would the Fed embrace QT?
When Does the Fed Use Quantitative Tightening?
Post-pandemic, QT made sense because the emergency conditions that justified massive stimulus no longer existed. Inflation was high, the economy was overheating, and the Fed’s balance sheet stood at approximately $9 trillion as of May 2022.
QT was a shift from rescue mode to restraint, getting the balance sheet down to about $6.5 trillion by late 2025. However, this change had drained enough bank reserves (cash that banks keep at the Fed) and liquidity that pushing QT further risked disrupting financial markets. The economy was at risk of being strangled, and now, in 2026, the Fed needs to breathe life back into it. But how?
A Shift from Quantitative Tightening
Fed Chair Jerome Powell suggested a change in the winds during a speech at the National Association of Business Economics in October 2025:
“Our long-stated plan is to stop balance sheet runoff [aka quantitative tightening] when reserves are somewhat above the level we judge consistent with ample reserve conditions.”
If the Fed plans to stop QT, that begs the question: What comes next? Fast forward to December 2025, Powell announced that:
“The committee decided to initiate purchases of shorter-term Treasury securities, mainly Treasury bills, for the sole purpose of maintaining an ample supply of reserves over time… reserve management purchases will amount to $40 billion in the first months and may remain elevated for a few months to alleviate expected near-term pressures in money markets.”
This officially marks the start of a policy shift that smells a lot like quantitative easing.
What is Quantitative Easing?
Quantitative easing (QE) is the exact opposite of quantitative tightening. Designed to inject more money into the economy, QE works by having the Fed purchase government securities, like U.S. Treasury bonds, on the open market, expanding its balance sheet and increasing liquidity. This is the action plan that Powell described in December.
Why are the Feds Using Quantitative Easing?
The Fed historically turns to QE when cutting interest rates isn’t enough to stimulate the economy or when interest rates hit zero, as they did during the 2008 crisis. By adding reserves to the banking system and driving down longer-term interest rates, QE encourages banks to lend and consumers to borrow, stimulating economic activity even when the federal funds rate is already low.
The everyday consequences of QE include:
- Lower long-term interest rates
- More money in circulation
- Easier credit access and more loan approvals
- Increased consumer and business spending
QE and Inflation
If QT lowers inflation, does that mean QE raises inflation? It can, which is cause for pause.
Historically, quantitative easing is used when inflation is too low and the economy needs a boost. Currently, the economy needs a boost, but the inflation rate is 2.7%, which is above the Fed’s target of 2%. So, as liquidity might increase due to QE, the inflation risk remains. This could increase the cost of living and erode purchasing power if wages don’t keep pace with rising expenses.
The Impact of QE on Your Finances
While QE has its benefits, it’s not all sunshine and rainbows. Here’s the breakdown:
PROS:
1.) Easier Access to Credit
By increasing liquidity, QE encourages banks to lend more freely. This can make it easier for individuals and businesses to secure loans and credit.
2.) Lower Borrowing Costs
Quantitative easing can lower interest rates, making monthly payments and long-term loans more affordable. In a time of QE, it might be wise to explore fixed-rate loans while rates are low, whether it’s an auto loan, a personal loan, or a home equity loan.
Furthermore, if you’re looking to buy a home, mortgage loans are expected to dip under this QE policy. So if home buying or home improvement is up your alley, QE could help you achieve your goals at a more affordable price.
3.) Boost Stock Markets
Lower interest rates on “safe investments” like savings accounts, money market accounts, and CDs may encourage investors to seek higher returns in the stock market. Businesses can also borrow more easily to expand, which boosts stock prices over time.
CONS:
1.) Benefits Borrowers Over Savers
While lower rates help borrowers, they reduce the returns on typical savings accounts, and inflation can further erode the value of money held in “safe” investments.
2.) Credit Crunch Due to Uncertainty
While the Fed uses QE to provide more liquidity, banks aren’t forced to increase the amount of loans they approve. If economic uncertainty rises, banks may hold back cash to protect themselves, making it harder to obtain loans and slowing the economy, a situation known as a credit crunch.
3.) Inflation Risks
More money in circulation increases the risk of inflation. In turn, this can reduce the purchasing power of your savings and make goods and services harder to afford.
How to Prepare Your Finances for Quantitative Easing
1.) Search for low rates
Quantitative easing can open the door to refinancing, locking in fixed-rate loans, or finally funding a long-planned purchase or renovation.
Think about your long-term goals and how different financial tools, especially loans, can help you get there. The checkered flag is about to wave, and you want to make sure you’ve started your engine.
2.) Improve your credit
When lenders are ready to lend, you want to be the borrower they’re excited to approve.
While lending is expected to be more accessible, embracing credit-building activities like the ones below can help with securing even better terms when rates fall:
- Paying down balances
- Correcting errors on your credit report
- Making on-time payments
- Lowering your credit-utilization ratio
3.) Revisit your debt repayment strategy
QE paves the way for refinancing high-interest debt repayment with low-rate home equity loans and personal loans. Evaluate if your current debt repayment strategy is working for you, and if this is a good opportunity for you to adjust.
4.) Inflation
Preparing for the possibility of inflation can diminish financial strain if it occurs. Regularly putting money into an emergency fund and a diversified investment portfolio can help you stay on top of economic changes.
5.) Reevaluate your savings
If you’re a savings account lover, QE could encourage you to put those funds to work in other ways to maintain financial growth, such as a retirement account, brokerage account, or a higher-yield savings account.
How 1166 FCU Can Help
If you’re not sure what all of this means for your specific situation, our certified Financial Counselors are ready to help you weigh the pros and cons and create a clear plan for your next best steps toward financial success.
