Quantitative tightening (QT), namely the shrinking of central banks’ balance sheets, is likely to play an active role alongside rising interest rates in the tightening of monetary policy over the coming months. However, central banks will have to play it by ear when it comes to the mix of these policies. If QT sparks a bigger tightening of financial conditions than expected, then interest rates may not have to rise by much.
This report is part of a research series exploring what higher interest rates will mean for economies and markets.
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