In describing the revised monetary policy stance, we have been at pains to emphasise that this tightening cycle will not necessarily move rates as far or as fast as in previous cycles. There are good reasons for this. Subdued economic growth reduces demand-driven inflation. Fiscal policy has moved in the direction of consolidating deficits, which should ease pressure on capital markets.
By introducing unconventional measures, such as longterm refinancing operations or assets purchases, central banks have begun to intervene ever deeper in financial markets. Both the Bank of England and the US Federal Reserve have expanded their balance sheets from roughly 5% of GDP in 2008 to more than 20% in 2017.