Central Banks
Quantitative Tightening Goes Global for the First Time, in Test for Markets
- Central banks have moved to slim their balance sheets
- Investors on watch for volatility, see QT adaptation if needed
The Marriner S. Eccles Federal Reserve building in Washington, DC.
Photographer: Stefani Reynolds/BloombergThis article is for subscribers only.
After having sailed through uncharted waters repeatedly over the past two decades, the developed world’s top central banks are entering a new stretch: For the first time, they’re engaging in joint quantitative tightening.
Last month’s decision by the Bank of Japan to steadily shrink its portfolio of bond holdings in coming years means it’s now engaging in balance-sheet contraction alongside the Federal Reserve, European Central Bank and Bank of England. While QT, as it’s known, is different in each jurisdiction, it involves a withdrawal of the liquidity that central bankers pumped into their economies during the pandemic crisis by buying bonds.