Will Burchell, Brian Gowen, Cullen Kavoussi, and Brandon Lauer

Many advanced economy central banks—including the Federal Reserve, the Bank of England (BoE), and the European Central Bank (ECB)—responded to the COVID-19 pandemic by conducting asset purchases to support functioning in sovereign bond markets and ease financial conditions. As a result of these purchases, central bank balance sheets grew to historic levels. Since then, these central banks have aimed to reduce their securities holdings and have seen the size of their balance sheets decline from COVID-era peaks (Figure 1). All three central banks have developed tools to ensure they can maintain strong rate control even as their balance sheets have been shrinking.