What is tapering?
In one line: Tapering is when a central bank gradually slows the pace of its bond purchases, step by step, before stopping them.
A simple example
During hard times, a central bank may buy bonds every month to push long-term rates down. That's Quantitative easing (QE).
Tapering is slowing that buying down, not reversing it. Here's an illustration:
| Month | Bonds bought |
|---|---|
| Before taper | $120 billion |
| Month 1 | $105 billion |
| Month 2 | $90 billion |
| … | … |
| Month 8 | $0 |
The central bank is still buying in each step, just less. When it hits zero, the taper is done.
Why markets care
Tapering is a sign the central bank thinks the economy needs less help. That often comes before rate hikes. Markets try to price that in early.
The best-known case is the 2013 "taper tantrum." In May 2013, Fed Chair Ben Bernanke said the Fed might slow its bond buying. Bond yields jumped over the following months, and markets were rattled, even though actual tapering didn't begin until early 2014.
The Fed tapered again starting in November 2021. That time it signaled the plan well ahead.
Why it matters for traders
Tapering talk tends to push long-term Bond yields up and can lift the currency. It can weigh on stocks and other assets that benefited from cheap money. The words come first, so the Fed's statements and press conferences matter.
A common mistake
Thinking tapering means the central bank is selling bonds. It isn't. It's buying fewer. Selling, or letting bonds roll off without replacing them, is called quantitative tightening (QT). That's a separate step.
Like rate changes, the surprise moves markets most. Our FOMC meeting guide shows how to read the statement and press conference.
Questions
What is a taper tantrum?
A sharp market reaction, mainly a jump in bond yields, to news that a central bank will slow its bond buying. The name comes from 2013.
Is tapering the same as raising rates?
No. Tapering slows bond buying. Raising rates lifts the short-term rate. Tapering often comes first.
Why do central banks taper slowly?
To avoid shocking markets. Small steps give everyone time to adjust.
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