Taper Tantrum

What Is Taper Tantrum?

The "taper tantrum" refers to a market event in 2013 in which bond yields jumped sharply after Federal Reserve comments suggested that its quantitative easing purchases might soon slow, or "taper." Tapering describes the gradual winding down of an asset-purchase program - reducing the pace of new bond buying rather than stopping abruptly. In 2013, merely signaling that tapering was on the horizon was enough to unsettle markets, sending longer-term interest rates higher as investors repriced their expectations. No rates were actually raised and purchases were still ongoing; the reaction was driven entirely by the shift in the expected future path of policy.

Why It Matters

The taper tantrum is a textbook lesson in how powerful - and how sensitive - expectations are in modern monetary policy. Because bond yields reflect the anticipated future path of Fed policy, a change in that anticipated path can move markets even before the Fed acts. The episode taught the Fed to communicate changes to its asset purchases carefully and gradually, and it looms over every subsequent decision to slow or unwind stimulus, including the later transitions out of pandemic-era QE. It also illustrates the double edge of forward guidance: the same communication that lets the Fed steer expectations can trigger sharp reactions if markets are caught off guard.