The effects of tapering should be toned down

In their communication, central banks are right to distinguish between decisions concerning securities purchase programmes and those concerning key interest rates. This is because long-term interest rates depend on: Expected short-term interest rates; Expected inflation; The stock of securities held by the central bank; The global savings rate. If tapering leads to a stabilisation of the size of the central bank’s balance sheet and not to a reduction in the size of that balance sheet, it does not therefore drive up long-term interest rates, whereas an expected hike in short-term interest rates drives them up. If tapering has no effect on long-term interest rates, it should therefore be toned down .