Central Banks' Balance Sheet Reduction Hits Roadblock

Major central banks have begun reducing their balance sheets since the COVID-19 era, but the pace of this reduction is slowing down. The Federal Reserve, Bank of England, and European Central Bank have seen their balance sheets decrease relative to nominal GDP to pre-pandemic levels.

The Bank of England's aggressive approach to quantitative tightening has cut its balance sheet by over half since 2022, potentially increasing UK borrowing costs by 0.7 percentage points.

Despite the end of large-scale asset purchases, large central bank balance sheets are expected to remain a lasting feature of monetary policy in the U.S., UK, and euro zone.