An interesting story will make it understand
better…
Mr. Chintamani owns a small sweet shop in Delhi. His wife Bhagyawanti is a home maker and takes care of their two kids Arnab and Barkha who study in college.
Chintamani with great difficulty sets aside Rs. 15,000 a month for household expenses. This amount is sufficient to run the house but not enough to fulfill Arnab and Barkha's growing needs of entertainment and extra-curricular activities.
Arnab and Barkha remain dejected and left out from their peers as they don't have enough pocket money to spend.
Chintamani cannot withstand his kids' sadness and decides to increase the monthly household expenses. He sets aside an additional Rs. 5,000 a month as pocket money as long as the kids behave well, study diligently and score good marks in exams. He wanted to fulfill all their wishes and hobbies even though he had to put an extra effort to earn that incremental Rs. 5,000 every month.
This made Arnab and Barkha happy as they could now do everything that their friends could do or afford. This positive energy reflected into their studies and they scored well in their college exams.
Chintamani and Bhagyawanti knew that their kids are now ready to take on the challenge to earn their own livelihood and become financially independent. So, they decide to gradually reduce Arnab and Barkha’s pocket money by 5% every month till the time they find a part-time job for themselves of their choice.
This process of gradual roll back of pocket money is similar to tapering under way by the U.S. Federal Reserve (popularly known as Fed).
What is tapering?
Tapering refers to the reduction in the quantum of the bond buying programme by the Fed.
The bond buying, also known as the Quantitative Easing (QE) program was launched to kick-start hiring and growth in the US economy. The Fed's first QE program was launched in the midst of the 2008 financial crisis.
Mr. Chintamani owns a small sweet shop in Delhi. His wife Bhagyawanti is a home maker and takes care of their two kids Arnab and Barkha who study in college.
Chintamani with great difficulty sets aside Rs. 15,000 a month for household expenses. This amount is sufficient to run the house but not enough to fulfill Arnab and Barkha's growing needs of entertainment and extra-curricular activities.
Arnab and Barkha remain dejected and left out from their peers as they don't have enough pocket money to spend.
Chintamani cannot withstand his kids' sadness and decides to increase the monthly household expenses. He sets aside an additional Rs. 5,000 a month as pocket money as long as the kids behave well, study diligently and score good marks in exams. He wanted to fulfill all their wishes and hobbies even though he had to put an extra effort to earn that incremental Rs. 5,000 every month.
This made Arnab and Barkha happy as they could now do everything that their friends could do or afford. This positive energy reflected into their studies and they scored well in their college exams.
Chintamani and Bhagyawanti knew that their kids are now ready to take on the challenge to earn their own livelihood and become financially independent. So, they decide to gradually reduce Arnab and Barkha’s pocket money by 5% every month till the time they find a part-time job for themselves of their choice.
This process of gradual roll back of pocket money is similar to tapering under way by the U.S. Federal Reserve (popularly known as Fed).
What is tapering?
Tapering refers to the reduction in the quantum of the bond buying programme by the Fed.
The bond buying, also known as the Quantitative Easing (QE) program was launched to kick-start hiring and growth in the US economy. The Fed's first QE program was launched in the midst of the 2008 financial crisis.
But why is Fed tapering now?
The Fed's decision to taper its massive bond buying is due the recovery in the US job market and the confidence that the economy will continue to grow inspite of the tapering.
Hope the above explanation would have given you an idea of the Fed tapering.
Excerpts from TATA MUTUAL FUND. Just name of
the character has been changed…
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