The mechanics
In quantitative easing, the Fed buys longer-term securities — Treasuries and mortgage-backed securities — from the market and pays for them with newly created bank reserves. The seller's bank ends up with more reserves at the Fed; the seller ends up with a deposit instead of a bond. Two things have genuinely been created: reserves (central bank money) and, when the seller is a non-bank, a matching deposit (broad money). The Fed's balance sheet grows by the amount purchased, on both sides at once — securities on the asset side, reserves on the liability side.
Why it isn't simply "printing money"
The reserves created by QE never circulate in the economy. They exist only in accounts at the Fed, moving between banks; you cannot spend a reserve at a grocery store. Whether QE raises the money people actually hold — M2 — depends on who sells the bonds and what happens next. The 2010s made the distinction vivid: the monetary base roughly quintupled between 2008 and 2015, while M2 grew at a fairly ordinary 6–7% pace and CPI inflation stayed below target for most of the decade. Base money and broad money are created by different actors through different processes — the subject of How Money Is Created.
What QE is actually for
QE is a tool for when the overnight rate is already near zero and can't be cut further. By absorbing duration from the market, it pushes down longer-term yields (the "portfolio balance" channel), signals that policy will stay easy, and, in a panic like March 2020, simply keeps the Treasury market functioning. Its measured effects on yields are real but modest per trillion; its effect on asset prices and on the distribution of wealth is a live area of debate.
Quantitative tightening
QT is the unwind: the Fed lets maturing securities roll off without reinvesting, up to monthly caps, shrinking reserves as the Treasury reissues debt to private buyers. It is deliberately boring by design — "like watching paint dry," in the Fed's own phrase — but not riskless: the 2019 repo market disruption showed reserves can become scarce sooner than expected, and the Fed now watches money market plumbing closely as the sheet shrinks. QT reverses the balance sheet, but no one claims it mechanically reverses whatever asset price effects QE had — the asymmetry is acknowledged and poorly understood.
The 2020 difference
Why did 2010s QE coincide with low inflation while 2020's response was followed by the highest inflation in forty years? A key difference is that 2020–21 combined QE with enormous fiscal transfers — checks that landed directly in household deposits. M2 grew more than 25% year over year at the peak, versus single digits throughout the 2010s. QE that finances spending reaches broad money; QE that swaps assets with investors mostly doesn't. The full argument is in Does Printing Money Cause Inflation?
Related reading
The Fed's Balance Sheet, Explained · How the Fed Sets Interest Rates · Current M2 data