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.