Overview
Tapering slows the pace of QE purchases without selling assets; it typically precedes rate hikes and quantitative tightening (shrinking the balance sheet). Ben Bernanke’s May 2013 testimony hinting at it triggered the taper tantrum — jumps in US yields and emerging-market sell-offs (Sahay et al., 2014); the taper itself began in January 2014. In November 2021 the Fed announced a taper of its $120bn monthly purchases. Effects include higher bond yields, a stronger dollar and capital outflows from emerging markets. See liquidity trap.
Frequently asked questions
- Is tapering tightening?
- Technically it eases less; markets often treat it as a tightening signal.
References
- Bernanke, B. S. (2013, May 22). Testimony before the Joint Economic Committee, U.S. Congress.
- Board of Governors of the Federal Reserve System. (2021, November 3). Federal Reserve issues FOMC statement.
- Sahay, R., et al. (2014). Emerging market volatility: Lessons from the taper tantrum. IMF Staff Discussion Note SDN/14/09.