What is Quantitative Easing vs Tapering of US FED ? | Impact on Stock Market
In this #shorts, we explain what is Quantitative Easing and Tapering of US FED and the impact on US Economy and the World.
Details :
Last year during the Pandemic in 2020, the FED committed to buying Billions of Treasury Bonds and Mortgage Backed Securities every month with the objective to increase the money supply, encourage lending by reducing the cost of borrowing and help the economy .
This stimulus is called Quantitative Easing.
However one of the side-effects of QE is that it drives up all asset prices such as Bonds to Shares to Property prices what we saw in the last 1.5 years. As a result, investors tend to like it when central banks add more QE, but aren’t so happy when they reduce it.
Now what is Tapering : Tapering simply describes a reduction in the amount of QE a central bank is doing.
Tapering does not refer to reducing the total holdings of the FED, but only refers to slowing down the rate at which the Fed adds to its balance sheet. The current plan is to reduce FED’s purchases by $30 billion a month to end in March 2022.
Inflation rose to 6.8% in November 21 and this tapering will help bringing inflation back down to FED’s 2% target.
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