Global Impact of Quantitative Tightening: Central Banks Follow the Trend

Recently, central banks around the world, including the Federal Reserve System of the United States, the European Central Bank, and the Bank of Japan, have initiated a process known as quantitative tightening (QT). This strategy entails reducing the central banks' balance sheets by selling government bonds and other assets, which results in rising interest rates and increased difficulty in accessing funds for borrowers.

Quantitative tightening has emerged as a response to high inflation driven by post-pandemic economic changes and global crises such as the energy situation. Central banks seek to limit the money supply to cool down economic activities and tackle inflationary pressures. This approach is significantly different from quantitative easing (QE), which was used to stimulate the economy during tough times.

The approach chosen by central banks has proven to be more complex than anticipated. Not only do economic indicators play a role, but also public opinion regarding the impact of these changes on the standard of living heavily influences decision-making. Countering inflation requires central banks to finely tune their policies, which creates additional challenges for their management amid the potential for recession.

Experts note that the current tightening may have long-term consequences for both developing countries and the global economy as a whole. In a world of interconnectedness, decisions made in major economies have an immediate and significant impact on financial markets and currency exchange rates worldwide.

Some analysts express concerns that excessive quantitative tightening could lead to economic instability. However, others argue that it is a necessary step to regain control over inflation and ensure sustainable economic growth.

#centralbanks #quantitativetightening #economy #inflation #globalfinance