There's no need to tighten our belts just yet - monetary policy is still accommodative. But as the economy continues to improve, the time will eventually come when the Fed will need to start thinking about withdrawing some of its stimulus. That process, known as Monetary Tightening, typically involves raising interest rates and increasing reserve requirements (the amount of money banks must hold in reserve).While higher rates and stricter reserve requirements may sound like a drag on economic growth, they are actually necessary for maintaining long-term stability. By making credit less readily available, central banks can help prevent asset bubbles from forming and reign in inflationary pressures.So while we don't need to worry about Monetary tightening just yet, it's something we should keep an eye on down the road. After all, it's better to be prepared than sorry when it comes time for the Fed to start normalizing policy.
