An action whereby the U.S. Federal Reserve (the Fed) cuts back- or taper- its bond purchases. Usually, the Fed buys bonds in the open market in order to keep interest rates low. Bond purchasing is mainly pursued by the Fed as a stimulus targeting the broader economy. The degree of tapering gives an indication to the performance of the broader economy. A sharp taper, which implies large cuts in bond purchases, would pull down the U.S. market and other global markets and send bond yields “through the roof”. A gentle tapering would suggest economy is flat or not doing very badly. No tapering, or delayed tapering, is indicative of the central bank’s discomfort with the economic performance for the time being. However, it means the market will currently follow, or keep, a sentiment bullish course.
August 27, 2024
