LONDON : As speculation grows about when the Federal Reserve will begin reducing the size of its balance sheet, some analysts say the era of"quantitative tightening" has already started.
Still, other central banks such as the European Central Bank are likely to keep adding to global liquidity this year, offsetting some of that tightening. Steve Donzé, senior macro strategist at Pictet Asset Management, estimates the Fed, ECB, Bank of Japan, Bank of England, People's Bank of China and the Swiss National Bank will collectively expand their balance sheets by US$600 billion in 2022 - far below the post-financial crisis average of US$1.8 trillion and 2021's US$2.6 trillion, but still a net addition.
Donzé reckons Fed tightening, driven by the end of quantitative easing, rate hikes and then QT, will result in a 4.7 percentage point rise in a U.S."shadow" real policy rate to -1.8per cent by the end of 2022.
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