Reversing the 'great easing'...What lies ahead for central banks?

CIO MONTHLY | OCTOBER 2021

While the outlook over the next two years is not without risk, as we approach 2022, the worst of the pandemic-led recession is likely behind us. With policy likely to become ‘less easy’, we look at what lies ahead for the world’s major central banks, and what this means for bond markets and currencies.


  • It is now consensus that the US Federal Reserve (the global rate setter) will detail its taper at its 3 November meeting and start tapering at the December meeting. While the Fed has signalled an intent to finish tapering by mid-2022, there is still no consensus on rate hikes. CBA sees the first hike in December 2022, while UBS believes easing inflation in 2022 will drive a dovish tilt, pushing out a hike until 2024.
  • The ‘doves’ (European Central Bank, Reserve Bank of Australia and Bank of Japan) are signalling a slower pace than the Fed, while the ‘hawks’ (Bank of Canada, Bank of England, and Reserve Bank of New Zealand) are likely to move faster.
  • While most central banks are positioning (or have already started) to wind back their stimulus via bond-buying during the next 12 months, the impact of this on bond yields is uncertain. On the one hand, the improved growth outlook should lead to higher bond yields, but on the other, in 2013, concerns that central banks were moving too quickly saw bond yields retrace lower.
  • For exchange rates, the clear delineation between central banks that are relatively hawkish and dovish over the coming year suggests the Australian dollar, the euro and the Japanese yen may struggle relative to the British pound, New Zealand dollar and Canadian dollar.