Tightening

Tightening means making monetary policy stricter, usually by raising interest rates or reducing support for the financial system. In simple terms, tightening makes money and credit harder or more expensive to get. Tightening is important because central banks use it to slow inflation and cool an overheated economy. It can reduce borrowing, spending, and investment. For example, if the Fed raises interest rates several times, that is a tightening cycle. Tightening is not the same as recession. It can slow the economy, but whether a recession happens depends on many factors.