Effects of quantitative tightening by the ECB and Fed on inflation and GDP

After a years-long, low-interest-rate environment, the COVID-19 pandemic and the Ukraine war have led to rapidly rising inflation rates. In order to fight inflation, the Fed began to lift benchmark rates in March and the ECB in July 2022. In addition, the central banks first rolled back their asset purchase programmes after years of quantitative easing before taking the further step of unwinding their asset holdings. The calculations presented in our most recent publication provide a rough indication as to how large the effects of quantitative tightening on inflation and GDP in the euro area and the US are (and could be in future) and how many interest hikes they substitute. The calculations indicate that the central banks' current monetary policy may already be more clearly in restrictive territory than the benchmark interest rate alone suggests.

Effects of quantitative tightening by the ECB and Fed on inflation and GDP(PDF, 132 KB, accessible)