An Action-Packed Year For Major Central Banks

#OPINIONLEADER#

JAN 3, 2022

2021 has been an action-packed year for central banks around the world. As the global economy starts recovering from the pandemic, many central banks have started to unwind their quantitative easing (QE) while some have even started increaseing interest rates. As the year is coming to an end, let us look at the progress made towards policy normalization by some of the major central banks.

Federal Reserve – Three rate hikes in 2022

Starting off with the most influential central bank, the U.S. Federal Reserve began its path to policy normalization in November when it announced the start of the tapering of its massive $120 billion per month bond-buying programme. The Fed committee members agreed unanimously to an initial slowdown of bond-buying to $105 billion per month (tapering pace of $15 billion per month) for November and December. Beyond December, tapering pace may be subjected to adjustments depending on the economic outlook.

Nonetheless, it did not take long for the central bank to carry out an adjustment. Annual headline inflation in the U.S. for November rose to 6.8%, a level close to 40-year high. Consequently, the Fed doubled the pace of QE tapering to $30 billion per month. Thus, starting from 2022, bond-buying will be carried out at $60 billion for January, $30 billion for February before concluding in March. The decision to speed up tapering comes as the central bank’s Chief Jerome Powell acknowledged that inflation in the country “may be more persistent” than initially expected. Besides, the Fed has changed its view that inflation is transitory and will communicate more clearly to the public when it comes to inflation in the future.

With the expectation that QE will be ending in March 2022, members of the committee have carried forward their projections of the timeline of interest rate hike, with several members expecting three hikes in 2022.