GO
Loading...

Taper: What Wall Street's favorite buzzword means

Wednesday, 18 Sep 2013 | 1:00 PM ET
Getty Images

When people talk about the Federal Reserve "tapering," they're referring to a reduction in the pace of the Federal Reserve's bond buying program, popularly known as QE.

The Federal Reserve itself doesn't use the phrase "taper," just like it doesn't call the bond-buying program QE. Instead, it says it may "reduce the pace of its purchases."

(Read more: Continuing resolution explained)

The term took the financial world by storm after Federal Reserve Chairman Ben Bernanke told a Congressional panel on May 22 that improving economic conditions meant that "we could in the next few meetings ... take a step down in our pace of purchases."

At a press conference over the summer, Bernanke got specific about the criteria that would guide the Fed's tapering. He said that given the Fed's forecasts for the economy, he expected that the taper would begin before the end of 2013 and that the program would end entirely in 2014. He emphasized that these dates were based on the economy performing as expected rather than hard deadlines. If the economy performs better or worse than expected, the dates could shift forward or backward.

(Read more: What is a market correction?)

Featured

Contact CNBC Explains

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Latest Special Reports

  • The day you stop working will be here before you know it, making preparation now key to enjoying your golden years.

  • Is an active twist on passive investing the right portfolio move? An inside look at the rise of ETF strategists.

  • Simplifying news on the clock.

Central Banking Explained

Corporate Accounting Explained