28 March 2014

What is Tapering

What is Tapering
The word tapering in financial terms is increasingly being used to refer to the reduction of the Federal Reserve's quantitative easing, or bond buying programme. Taper talk" started in June 2013 by Ben Bernanke when speculation increased that the Fed would start on a tapered end to QE in 2014.
The Federal Reserve System is the central banking system of the United States. The Federal Reserve’s duties can be categorized into four general areas:
·         Conducting national monetary policy
·         Supervising and regulating banking
·         Maintaining financial system stability and containing systemic risk.
·         Providing financial services
Governments and governmental agencies also use bonds to raise money. U.S. Treasury Bonds are the most secure investments in the world because the U.S. Government backs them with its "full faith and credit.“Bond prices and yields are like a seesaw: when bond yields go up, prices go down, and when bond yields go down, prices go up. In other words, a move in the 10-year Treasury yield from 2.2% to 2.6% indicates negative market conditions, while a move from 2.6% to 2.2% indicates positive market performance
The U.S. Federal Reserve (“the Fed”) plays an increasingly active role in the performance of the economy and financial markets through the use of its many tools. The most well-known of these tools is its ability to set short-term interest rates. The central bank enacts a low-rate policy when it wants to stimulate growth, and it maintains higher rates when it wants to contain inflation.