There is little doubt that advanced countries in the first half of 2022 will pull back, albeit partially, on the ultra-stimulative monetary policies they have pursued for several years. What is more consequential, yet less certain, is when and how this will lead to a meaningful tightening of financial conditions and what the spillover effects will be for the global economy. These issues are of interest not only to policy makers around the world but to businesses, households and investors as well.
Already, expectations have changed drastically for U.S. monetary policy. Less than two months after Federal Reserve Chair Jerome Powell “retired” the “transitory” characterization of inflation, consensus for this year has shifted to include the end of large-scale asset purchases, at least three interest rate increases starting in March and the initiation of shrinking the central bank’s balance sheet.
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