Central Banks have been responsible for the most unprecidented economic policy in modern times.

Since the Global Financial Crisis in 2008 and the European debt crisis in 2011, Central Banks around the world were quick to cut their interest rates to zero, or even negative in some instances. But even this wasn’t enough, and further monetary stimulus through unprecedented bond buying was warranted. Central Bank balance sheets expanded to a total of $14 trillion at its peak, with the makeup demonstrated via the chart above. In 2016 & 2017, some $4 trillion in bonds were purchased, with stock markets going into overdrive. In 2018, this is expected to drop to $0.4 trillion, and the question is what effect will this have on markets?

Higher interest rates and shrinking of asset purchases and balance sheets of Central Banks will have a tightening effect on the economy. Doing both at the same time risks an overstep, and a potential economic recession. It’s unprecedented policy and needs to be navigated carefully.