No "Taper Tantrum" This Time!

Posted on November 09, 2021

What does the Fed’s recent tapering announcement mean for today’s rate environment?

Chances are when you hear the word “tapering” your mind immediately flashes back to the chaos of the 2013 Taper Tantrum episode. If you’re unfamiliar, this event refers to the collective reactionary panic when investors caught wind of the Fed’s intentions to reduce the pace of its Treasury bond purchases, reducing the volume of money it was funneling into the markets. This resulted in an out-of-control spike in interest rates and U.S. Treasury yields.

It’s no wonder that today, nearly 8 years after than fateful downturn, when the Fed announced its intention to slow its asset purchases yet again, analysts, investors and the general public took notice.

Will we see the same volatile rate environment this time around?

The most important difference between the 2013 event and our present environment is that the market wasn't prepared for the Fed’s decision to taper last time. The Fed’s portfolio was not as strong as it is today, meaning it now has more leverage in the market to temper volatility. Additionally, by its own admission, the Fed’s poor communication contributed to the collective confusion and panic, a mistake that Jay Powell, Chair of the Federal Reserve, is not inclined to repeat.

In addition to the Fed’s own precautions and improved communication surrounding their intentions to back off treasuries and mortgage securities, the Treasury announced that they'd also begin cutting back on the number of securities they’re offering. This change will offset the duration caused by the Fed’s tapering efforts. In a surprise announcement, the Bank of England put interest rates on hold, prioritizing economic growth over inflation. This news will also help keep interest rates in check.

You may be wondering what this means for United Community Bank’s financial position. We’re happy to report that analysts agree that United is situated in an opportune position heading into this new environment. United is defined as asset sensitive, meaning we have excellent deposit health and liquidity, positioning us for continued growth should rates increase modestly, as is expected in coming months.

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