When Does Tapering Begin? The Fed implements quantitative easing as one of its tools to stimulate the economy. Like all economic stimulus programs, QE policies are not intended to be permanent and after the desired results of an economic stimulus program have been achieved, those policies must be gradually rescinded. If a central bank changes its operations too fast, it can push the economy into a recession. If a central bank never eases its economic stimulus policies, there may be an increase in inflation. Tapering is the period where the stimulus has worked and before an accelerated expansion toward inflation. What Is the Difference Between Tapering and Tightening? Tight, or contractionary policy is a course of action by a central bank to slow down economic growth, constrict spending in an economy that is seen to be accelerating too quickly, or curb inflation when it is rising too fast. The Fed tightens monetary policy by raising short-term interest rates through policy changes to the discount rate, also known as the federal funds rate. The Fed may also sell assets on the central bank's balance sheet to the market through open market operations (OMO). Tapering refers to the period of reversal between expansionary policy and contractionary monetary policy.
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