Line chart showing the amount of central bank assets, measured as a percent of GDP, for the Federal Reserve, Bank of Japan, and European Central Bank from January 2005 to March 2024. Due to the COVID-19 pandemic, these central banks increased their assets dramatically beginning in 2020. The Federal Reserve and European Central Bank have been reducing central bank assets since 2022. The Bank of Japan reduced assets starting in 2022, until it resumed increasing assets in October 2022 and began holding them relatively steady since mid-2023.
Line chart showing the level of several central banks’ benchmark rate: the federal funds rate for U.S., the China one year or less rate on RMB, the Bank of England base rate, the eurozone main refi minimum bid rate from January 2005 to June 2024. Central banks have increased rates between early-to-mid-2022 and late 2023 in the U.S., England, and eurozone. Meanwhile, China’s central bank kept interest rates fixed from mid-2022 to August 2023, when it cut rates. Since late 2023, the central banks shown have held rates constant.
Sources:
Left: Bloomberg and Wells Fargo Investment Institute. Quarterly data from January 1, 2005, to March 31, 2024. 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, 2005, to June 30, 2024. Headline central bank policy rates of selected countries. Refi = refinance. Min = minimum. RMB = Chinese Yuan Renminbi.
Key Takeaways
- Global liquidity, though still supportive of global growth, risks becoming less so in a delayed response to central banks’ earlier tightening to counter inflation. Any increase in financial stress poses one of the most visible threats to an increasingly levered global economy if the change comes too abruptly.
- Central-bank stimulus during the pandemic outpaced that of the Global Financial Crisis in 2007 – 2009, necessitating an extended period of adjustment to bring central-bank balance sheets back in line with their historical norms.