Major central banks, already plotting interest rate hikes in a fight against inflation, are also preparing a common pullback from key financial markets in a first-ever round of global 'quantitative tightening' expected to restrict credit and add stress to an already-slowing world economy.
The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, U.S., January 26, 2022.
It is a unique moment. The 2007-2009 global financial crisis also unleashed a wave of QE, but the following recoveries were never strong enough or provoked enough inflation to prompt a synchronized monetary tightening. The pandemic continues to reshape global commerce with major parts of the Chinese economy on lockdown; the war in Ukraine has become a humanitarian tragedy influencing flows of fuel, food and industrial minerals worldwide; and inflation is surging to multi-decade highs, prompting developed-world central banks to align to quash it.The aim of tighter monetary policy is to slow demand, particularly for credit-sensitive items like homes and autos, and to ease price pressures in doing so.
"There is very little experience of QT. There is none here and not much globally," Bank of England Governor Andrew Bailey said in March. The ECB so far has only committed to stopping net asset purchases later this year. Its balance sheet may still decrease in coming months if banks repay long-term loans, as many analysts expect. Some smaller players like the Bank of Canada have also halted reinvestment.'RISK OF A MISSTEP'
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