The Federal Reserve has said it will begin winding down its monthly asset purchases later this month at a pace of $15bn per month. 
Taper is the term Fed officials (and others) use to describe a plan to take their foot off the gas gradually, by trimming bond purchases over an extended period. The idea is to wean the economy slowly off the extra stimulus the purchases provide to avoid a crash landing. 
The US central bank has been buying $120bn of bonds per month. The plan announced on November 3 calls for that to come down by $15bn a month starting later this month.
The Fed’s usual method of fighting recessions is to push down the interest rates banks charge each other for overnight loans, which allows banks to offer cheaper loans to businesses and consumers, thereby stimulating economic activity. 
But in the wake of the 2008 financial crisis, the Fed realised that cutting its rate virtually to zero was not medicine enough. So the Fed began buying bonds in hopes of driving down long-term rates that are usually outside its control, in a programme it called quantitative easing.
The US economy rebounded strongly in the first half of 2021. While growth showed sharply in the third quarter, supply-chain bottlenecks and pent-up demand have stoked inflation to the highest levels since 1991. 
The labour market has continued to add jobs too, albeit at a slower pace than over the summer, and unemployment has fallen to 4.8%. 
That allowed Fed officials to declare the test for tapering had been met, which chair Jerome Powell clearly flagged in remarks on October 22, saying “I do think it’s time to taper.”
A lot is at stake now. 
Markets will be watching not only when the Fed begins to taper, but the pace at which it does so. 
Investors could take a decision to speed up the taper as a sign that the Fed will also accelerate rate hikes. Tightening policy too quickly could derail the economic recovery at a time of continued uncertainty over the duration of the health crisis. Moving too slowly could fuel the inflation pressures unleashed by the reopening from the pandemic.
The pace of the taper clears the way for a possible interest-rate increase in the second half of 2022, with nine of 18 officials forecasting a move next year in their September outlook. 
The Fed sets monetary policy by adjusting the interest rate big banks pay each other for overnight loans: the Fed funds rate. Changes in that rate ripple through the economy, affecting employment, output and the price of goods and services. 
The FOMC has decided to maintain the target range for its benchmark policy rate at zero to 0.25%. 
But Fed vice chair Richard Clarida said on Monday the “necessary conditions” to raise the US central bank’s benchmark lending rate from near zero will probably be in place at the end of next year.
The stakes are high and global, for sure. But, the dreaded Fed taper may ultimately be good for markets across the world. Higher US rates will send a clear message that the world’s biggest economy - and the growth engine - is revving up.