A Cautionary History of US Monetary Tightening

Second, the ongoing monetary tightening in major developed countries is likely to worsen external financing conditions for developing countries.

But monetary tightening would weaken already slow growth.

But when and how the Fed will begin tightening monetary policy remains unclear.

A Grexit could prove to be the last straw, and would surely lead to a tightening in domestic monetary conditions at a very precarious point in the economic cycle.

The good news for Asia is that most of the region s monetary authorities are, in fact, tightening policy.

The only effective anti inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone.

Loosening monetary policy would increase significantly the risks stemming from local government debt and shadow banking, while tightening monetary policy would fully expose those risks, posing a serious systemic threat.

But a rising euro pushed higher by excessively early monetary tightening by the ECB implies more real appreciation, further undermining competitiveness.

This is, of course, a formidable task that may have to be accomplished at a time when Congress opposes monetary tightening.

This deficit was due to structural conditions that were insensitive to monetary policy, specifically trade conditions.

Because of the lagged effects of monetary policy and the need to manage expectations, early tightening by the Fed would be appropriate.

It may have had something to do with the near total lack of response of long term interest rates to monetary tightening.

Second, they overestimated the extent to which quantitative easing (QE) by the monetary authorities that is, printing money could counterbalance fiscal tightening.

In Europe and Japan, for example, monetary and fiscal policies have been tightening in response to domestic concerns, further slowing the world economy.

But the recent popular use of the term awash with liquidity dates to 2005, a time when many central banks were tightening monetary policy.

The fact is that around most of the world, inflation and eventually inflation expectations will keep climbing unless central banks start tightening their monetary policies.

The ECB s paltry rate hike in December, together with the supine promise of no plans for further monetary tightening, demonstrates that Trichet is no Duisenberg.

Among the developing countries, many, especially in Asia, are tightening their monetary policy in response to their improvement in growth and increased fears of inflation.

The noose is tightening.

But recipient economies are vulnerable to financial market sentiment and sudden capital flight as happened recently when investors anticipated monetary policy tightening in the United States.

In other words, the eurozone needs a European Monetary Fund that prevents this vicious circle from tightening by providing bridging finance when capital markets break down.

A single currency means a single monetary policy and a single interest rate, even if economic conditions particularly cyclical conditions differ substantially among the member countries of the European Economic and Monetary Union (EMU).

Will Fed Tightening Choke Emerging Markets?

Well, they're tightening up on security.

Above the plane, tightening the rigging.

Against the background of a shaky global recovery, concerns have grown considerably over a possible hard landing for the Chinese economy, caused by monetary tightening aimed at controlling inflation.

The grip of the boa is tightening.

It also lowered long term interest rates in the US and made monetary conditions there more expansionary.

World monetary conditions seem to point to a protracted period of high liquidity and low international interest rates.

The Bundesbank is also tightening credit at home.

Monetary tightening was not the only major policy error of the 1930 s so was a retreat into protectionism, symbolized by the Smoot Hawley tariff increases at the beginning of that decade.

Indeed, there is already reason enough for them to be nervous after all, the Fed s epic easing of financial conditions must eventually be followed by exceptionally painful tightening.

However, tightening liquidity conditions led to an increase in the prime lending rate of some banks, from 12 per cent to 12.5 per cent by mid l99l. 4

Set each screw by tightening an additional 10 degrees

To be sure, a country s domestic economic circumstances, and the tools available to policymakers, should guide policy. And, though monetary tightening may well be advisable in some economies, it might be inappropriate in others.

For example, many countries that were tightening their monetary policy when the first signs of turbulence emerged have either put interest rate hikes on hold, or, like Brazil, have already started to reduce rates.

That acceleration had been achieved despite the slowdown in the major economies around the globe, the sustained rise in international oil prices and a gradual monetary tightening in an effort to contain inflationary pressures.

Housing prices are usually not included in measures of inflation, but they are directly related to monetary conditions and macroeconomic balances.

Meanwhile, given the fragility and interconnectedness of the global economy, tightening monetary policy in the US could have negative impacts abroad (with consequent blowback at home), especially given the instability in China and economic malaise in Europe.

But it is politically impossible for the Chinese government to alter its exchange rate policy under pressure without some concession from the US, and a tightening of US monetary policy could be sold as such a concession.

Widening external and domestic imbalances, higher oil prices, tightening monetary policy, less stimulatory fiscal policy, a moderation in productivity growth and the combination of low household savings and mounting household debt are all contributing to the slowdown.

But inflation remains high or rising, so more tightening is imposed.

At that time, both domestic investment and exports required immediate tightening.

UNTAC has been tightening security measures in the provinces most affected.