Hawkish Fed: World economy braces for QE exit, rate hikes

Hawkish Fed: World economy braces for QE exit, rate hikes

The much dreaded Fed taper is almost here. US Federal Reserve Chair Jerome Powell has indicated it would soon raise interest rates, but also cease adding to its massive stockpile of bonds by early March.

The bottom line: A key support for the global economy is going to be pulled away sooner than financial markets had been betting.

Bloomberg Economics expects Group of Seven central banks will add just $330bn to their balance sheets this year, a sharp drop from the more than $8tn added during the pandemic in a bid to ease markets, contain borrowing costs and spur demand and risk-taking.

The two biggest US banks have raised their forecasts of how quickly the Fed will raise interest rates this year, with Bank of America predicting a move at every meeting to tackle the highest inflation in four decades.

JPMorgan Chase & Co has separately lifted its call to five hikes in 2022 from four previously. Chief US economist Michael Feroli said Powell’s remarks following last Wednesday’s meeting “were clearly intended to dissuade the market from expecting a quarterly tempo of rate hikes.”

Goldman Sachs economists have also joined Wall Street peers in forecasting the Fed will raise interest rates more aggressively than