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Taper Tantrums: Why Central Banking Is Like Parenthood

Taper Tantrums: Why Central Banking Is Like Parenthood
Photograph by Getty Images

Last summer’s “taper tantrum”—when markets suddenly got worried that the Federal Reserve was about to start reducing its monthly purchases of bonds—ended fairly uneventfully. But a research paper presented today at a conference in New York suggests that it was a loud and clear warning to the Federal Reserve of the dangers of unconventional monetary policy. Such measures as buying bonds and giving “forward guidance” on rate policy “can build future hazards by encouraging certain types of risk-taking that are not easily reversed in a controlled manner,” the paper says.

The paper was presented at one of the year’s most important conclaves on U.S. monetary policy, the U.S. Monetary Policy Forum, and the discussion of it was probably the most thorough airing yet of the lessons from the bond market’s taper tantrum.