The Federal Reserve's taper in 2014 was preceded by sharp gyrations in Treasury markets and helped lay the foundations for a massive rally in the U.S. dollar.
With the Fed widely expected to soon begin an unwind of its $120 billion in government bond buying, here’s a comparison between the market backdrop around the time of the Fed’s most recent unwind and today.The Fed’s taper of the $85 billion a month bond buying program, which it began in response to the 2007-2009 financial crisis and recession, ran from January 2014 until October of that year.
Since then the central bank’s balance sheet has ballooned to $8.6 trillion as policymakers slashed rates to near zero and rolled out a raft of measures, including monthly government backed bond purchases, as they fought to support the economy in the wake of the COVID-19 outbreak last year.The Fed's balance sheetWhile U.S.
A widening between the yields on U.S. Treasuries and government bonds in other countries helped spark a rally in the dollar, which rose nearly 13% against a basket of major currencies in 2014.
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