central banknoun
SEN-trul bank
The institution responsible for managing a country's monetary policy, money supply, and often its banking system.
"The Federal Reserve is the central bank of the United States."
Federal Reserveproper noun
FED-er-ul reh-ZURV
The central banking system of the United States, known as "the Fed." Sets US interest rates and manages the dollar money supply.
"The Federal Reserve raised its benchmark rate seven times in 2022 to fight inflation."
monetary policynoun phrase
MON-eh-teh-ree POL-ih-see
The actions taken by a central bank to control the money supply and interest rates in order to achieve economic objectives.
"The ECB shifted to a tighter monetary policy stance as inflation exceeded its 2% target."
base ratenoun
bays rayt
The benchmark interest rate set by a central bank, which influences all other interest rates in the economy.
"When the Bank of England raised its base rate to 5%, mortgage costs rose across the country."
quantitative easingnoun phrase
KWON-tih-tay-tiv EE-zing
A policy where a central bank creates new money to buy financial assets, expanding the money supply. Used when interest rates are already near zero. Often abbreviated QE.
"During COVID-19, the Fed deployed over $3 trillion in quantitative easing."
quantitative tighteningnoun phrase
KWON-tih-tay-tiv TYT-en-ing
The reverse of QE — a central bank reduces the money supply by selling assets or allowing them to mature without reinvestment. Often abbreviated QT.
"Quantitative tightening is designed to cool inflation by reducing circulating money."
open market operationsnoun phrase
OH-pen MAR-ket op-er-AY-shunz
The buying and selling of government securities by a central bank to influence the money supply and short-term interest rates.
"Through open market operations, the Fed can inject billions into the banking system within hours."
bondnoun
bond
A fixed-income debt instrument — a loan to a government or company, paying regular interest and returning the principal at maturity.
"The government issued 10-year bonds at 4.5% to finance infrastructure spending."
yieldnoun
yeeld
The income return on an investment, typically expressed as a percentage of its current price. Bond yields move inversely to bond prices.
"As bond prices fell, their yields rose — signalling that the market expected higher inflation."
lender of last resortnoun phrase
LEN-der uv last reh-SORT
The central bank's role of providing emergency loans to banks that cannot borrow elsewhere — preventing collapse.
"Acting as lender of last resort, the Bank of England extended emergency credit to prevent the bank failing."
independencenoun (uncountable)
in-deh-PEN-dens
The principle that a central bank makes decisions free from direct political interference.
"Central bank independence prevents politicians from printing money for short-term electoral gain."
mandatenoun
MAN-dayt
The official set of goals a central bank is legally required to achieve — typically price stability, and sometimes employment.
"The ECB has a single mandate: price stability. The Fed has a dual mandate: stable prices and maximum employment."
tightenverb
TY-ten
To raise interest rates or reduce the money supply in order to slow economic activity and reduce inflation.
"The central bank tightened policy aggressively to bring inflation back to its 2% target."
loosenverb
LOO-sun
To lower interest rates or expand the money supply to stimulate economic activity and borrowing.
"The central bank loosened policy during the recession to encourage investment."
stimulusnoun
STIM-yoo-lus
Money or policy actions designed to boost economic activity during a slowdown.
"The government's $2 trillion fiscal stimulus included direct payments to citizens."
inflation targetnoun phrase
in-FLAY-shun TAR-get
The specific rate of inflation a central bank aims to maintain — typically 2% for major economies.
"Most central banks have a 2% inflation target, considered optimal for stable growth."
forward guidancenoun phrase
FOR-werd GY-dens
A central bank's communication about its likely future policy direction, used to manage market expectations.
"The Fed's forward guidance signalled that rates would remain higher for longer."
taperingnoun
TAY-per-ing
The gradual reduction of a central bank's asset purchase program — slowing QE before ending it.
"Markets reacted nervously to tapering news, fearing higher interest rates ahead."
reserve requirementnoun phrase
reh-ZURV reh-KWY-er-ment
The minimum percentage of deposits banks must hold as reserves, set by the central bank as a regulatory tool.
"The Fed reduced reserve requirements to zero in 2020 to encourage maximum lending."
transmission mechanismnoun phrase
tranz-MISH-un MEK-uh-niz-um
The process by which changes in monetary policy work their way through the economy to affect inflation and growth. Takes 12–18 months.
"The full transmission mechanism from rate rises to lower consumer spending takes over a year."
helicopter moneynoun phrase
HEL-ih-kop-ter MUN-ee
A monetary policy concept where a central bank distributes money directly to the public to stimulate spending. Named after Friedman's image of dropping cash from a helicopter.
"Economists debated whether COVID stimulus payments amounted to helicopter money."
hawkishadjective
HAW-kish
Describing a policy stance favoring higher interest rates and tighter money supply to control inflation. Opposite of dovish.
"The central bank's hawkish tone surprised markets, pushing bond yields higher."
dovishadjective
DUV-ish
Describing a policy stance favoring lower interest rates and easier money to support growth and employment. Opposite of hawkish.
"After weak GDP data, the governor adopted a more dovish tone in his press conference."
deflation risknoun phrase
dee-FLAY-shun risk
The danger that falling prices cause consumers to delay spending, which causes further price falls — a damaging economic spiral.
"Japan's deflation risk persisted for over two decades despite aggressive central bank action."