What is quantitative tightening, actually?

Quantitative tightening (QT) is what happens when a central bank shrinks its balance sheet by letting the bonds it owns mature without buying new ones to replace them — the reverse of quantitative easing, where it bought bonds to add money to the financial system.

The practical effect is that money that would have gone back into the bond market instead has to be replaced by other buyers. If demand from those other buyers isn't strong enough, bond prices fall and yields rise — which is why QT tends to put upward pressure on longer-term interest rates even when the central bank hasn't changed its short-term policy rate at all.

This is the source of a common confusion: a central bank can cut its short-term policy rate while simultaneously running QT, and the two can partly offset each other's effect on borrowing costs. When people say monetary policy is sending "mixed signals," this combination is often what they mean.