QT, asset pricing and financial markets: central banks’ ‘other’ monetary policy tool

Though the battle to rein in inflation continues in most major economies, monetary authorities are now beginning the much more uncertain process of quantitative tightening. As central banks drain liquidity from the financial system and unwind their balance sheets, what impact will this have on markets and government financing? Which markets will be particularly sensitive to tightening? What are the risks that may hinder policy-makers’ ability to implement QT as planned? Bill Papadakis, investment strategist on Lombard Odier’s macro team, speaks with OMFIF Chief Economist Neil Williams and Economist Taylor Pearce on the prospects for QT.