Global monetary policy in action

Left: Bloomberg and Wells Fargo Investment Institute. Quarterly data from January 1, 2007 to March 31, 2022. Fed = Federal Reserve. BOJ = Bank of Japan. ECB = European Central Bank. GDP = gross domestic product.

Right: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 2000 to March 31, 2022. Headline central bank policy rates of selected countries. Refi = refinance. Min = minimum. RMB = Chinese Yuan Renminbi.

Key Takeaways

  • We believe ample liquidity created by central banks during the pandemic is about to reverse in much of the world. Higher short-term rates and a reversal of aggressive quantitative easing by U.S. and foreign central banks appears set to reduce the growth of excess funds in the market and, in the process, nudge longer-term interest rates higher.
  • Central bank stimulus has outpaced that of the Global Financial Crisis in 2008 – 2009, signaling an extended period of adjustment to bring central-bank balance sheets back in line with their historic norms.