You might want to get familiar with this term because you will be hearing it a lot: the bond taper, or more widely known as just the taper.
When markets were in free-fall as the pandemic started to spread last year, the Federal Reserve knew it had to act quickly – and in a big way – to avoid a repeat of the 2008 global financial crisis.
Among a slew of measures taken by the Fed, one stood out: The central bank committed to buying a massive amount of bonds and mortgage-backed securities each month.
It was intended to stabilize markets and flood the economy with cheap credit. After all, bonds help determine all kinds of rates that are critical to Main Street, from what we pay on car loans to mortgages.
Today, the economy is improving and the jobs picture is getting better, yet the central bank currently continues to buy $120 billion worth of bonds and mortgage-backed securities every month.