Transition to QT Framework: QT is about reversing QE’s excesses and restoring balance-sheet normalcy.

QT 1.0 mostly let the portfolio “run off” (without reinvestment) but was muted by Treasury issuance patterns.

QT 2.0 takes a more active role—it seeks not only to shrink the balance sheet but also to alter its composition by favoring short-term reinvestment over long-term holdings. This shortens the weighted average maturity from 8.6 years (current FED holdings) toward a target close to the Treasury’s average of 5.9 years, thereby easing asset–liability mismatches.

Quantitative Numbers:

The FED’s balance sheet: About $4.16 trillion in Treasury securities with an 8.6-year average maturity.

Target Treasury duration: Approximately 5.9 years.

Monthly extra duration absorption: Around $20 billion (in 10-year equivalents).

QT 2.0 normalization might occur over roughly five years.