Quantitative Easing Tapering - Meaning & Its Importance
What Does Quantitative Easing (QE) Tapering Mean ?
Quantitative easing (QE) means increasing the money supply of the system. This is done when the Central Bank creates new money and uses the money to make asset purchases. These asset purchases inject the new money into the system.
Quantitative easing (QE) tapering is the reverse policy of quantitative easing (QE). It is when the government stops following the policy of quantitative easing (QE) gradually. For instance, at the present moment, the US government is buying $85 billion worth assets on a monthly basis. If the US government were to drop the asset purchases from $85 billion to $60 billion the next month, that would amount to quantitative easing (QE) tapering.
The Fed has been contemplating quantitative easing (QE) tapering for all of 2014. However, even the slightest mention of quantitative easing (QE) tapering sends the markets crashing. It is for this reason that the Fed is holding on and trying to find a better way and time to deal with the situation.
Why is Quantitative Easing (QE) Tapering Important ?
The policy of quantitative easing (QE) tapering has been talked about almost every day in the American media and the rest of the world. This is because it is the most important and the most unheard of monetary policy of our times. The magnitude of this policy is what provides it with this much importance. The way this policys implications unravel will have a long lasting and profound impact on various economic parameters. The summary of this has been provided in this article.
Quantitative easing (QE) tapering therefore is expected to have a huge impact on all the markets in the world. Since there is not much historical precedent, people are awaiting to see the end result of the use of this policy.
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