The global shift away from easy money is poised to accelerate as a pandemic bond-buying blitz by central banks swings into reverse, threatening another shock to the world’s economies and financial markets.
Bloomberg Economics estimates that policymakers in the Group of Seven countries will shrink their balance sheets by about $410 billion in the remainder of 2022. It’s a stark turnaround from last year, when they added $2.8 trillion — taking the total expansion to more than $8 trillion since COVID-19 arrived.
That wave of monetary support helped prop up economies and asset prices through a pandemic slump. Central banks are pulling it back — belatedly, in the view of some critics — as inflation soars to multidecade highs. The dual impact of shrinking balance sheets and higher interest rates adds up to an unprecedented challenge for a global economy already hit by Russia’s invasion of Ukraine and China’s new COVID-19 lockdowns.