The writer is Jerome and Dorothy Lemelson Professor of International Economics at MIT-Sloan School of Management and a former member of the monetary policy committee of the Bank of England
Central banks do not hesitate to expand their balance sheets when a crisis hits. They should also not hesitate to reduce their balance sheets during recoveries — especially when inflation is high.
In the past, the standard central bank playbook has been to wait for the recovery to solidify, then end any asset purchase programmes, then raise interest rates several times, and only then, if the recovery was still on track and inflation was nearing target, consider quantitative tightening.
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