It could take a generation for central bank balance sheets to normalize

It could take a generation for central bank balance sheets to normalize

Unless you’ve been living under a rock for the past ten years, you will know that one of the biggest unknowns hanging over financial markets today is central banks’ balance sheets. In an attempt to stimulate economic growth following the crisis, central banks around the world have gobbled up bonds in a bid to push down interest rates, lowering finance costs for companies around the world.

Now banks find themselves in a catch-22 situation. The markets are addicted to QE, and there’s no telling what will happen to interest rates without monetary stimulus. However, central banks can’t begin to sell down their bond holdings because they are own...