Monetary Tightening
a.k.a. Tightening, Hawkish policy
When a central bank makes money more expensive and scarcer, by raising rates or shrinking its balance sheet, to fight inflation.
Monetary tightening is a central bank hitting the brakes. It raises interest rates, stops buying bonds, or lets bonds roll off its books (quantitative tightening). Borrowing gets pricier, spending cools and, eventually, inflation is supposed to come down.
Currencies often strengthen when their central bank tightens, because savers get paid more to hold them. Brake too hard, though, and the economy can skid into a recession, which is the eternal balancing act.
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