{"id":27901,"date":"2021-12-15T04:38:00","date_gmt":"2021-12-15T04:38:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=27901"},"modified":"2021-12-20T08:22:01","modified_gmt":"2021-12-20T08:22:01","slug":"what-is-the-fed-taper-an-economist-explains-how-the-federal-reserve-withdraws-stimulus-from-the-economy","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/what-is-the-fed-taper-an-economist-explains-how-the-federal-reserve-withdraws-stimulus-from-the-economy\/","title":{"rendered":"What is the Fed taper? An economist explains how the Federal Reserve withdraws stimulus from the economy"},"content":{"rendered":"\n

Edouard Wemy<\/a>, Clark University<\/a><\/em><\/p>\n\n\n\n

Tapering<\/a> refers to the Federal Reserve policy of unwinding the massive purchases of Treasury bonds and mortgage-backed securities it\u2019s been making to shore up the economy during the pandemic.<\/p>\n\n\n\n

The unconventional monetary policy of buying assets is commonly known as quantitative easing<\/a>. The Fed first adopted this policy during the 2008 financial crisis<\/a>.<\/p>\n\n\n\n

Normally, when a central bank wants to reduce the cost of borrowing for companies and consumers, it lowers its target short-term interest rate. But with its target rate at zero<\/a> during the 2008 crisis \u2013 at the same time that there was no inflation and the economy was still hurting \u2013 the Fed was no longer able to cut rates further. And so the Fed turned to quantitative easing as a way to continue to reduce borrowing costs. When the government buys assets, their prices go up<\/a>, which lowers their yield or interest rate.<\/p>\n\n\n\n

The Fed again adopted this policy in March 2020 after the COVID-19 pandemic resulted in a national lockdown. By November 2021, the Fed had bought over US$4 trillion worth<\/a> of Treasurys<\/a> and other securities<\/a>.<\/p>\n\n\n\n

The U.S. central bank began tapering in November 2021, scaling back total purchases by $15 billion a month<\/a>, from $120 billion to $105 billion. The Fed decided to double the pace at which it tapers<\/a> on Dec. 15. Rather than $15 billion, the Fed will reduce purchases by $30 billion every month. At that pace it will no longer be purchasing new assets by early 2022.<\/p>\n\n\n\n

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