The effects of the decoupling of reduced bond purchases by the Federal Reserve and a hike in short-term interest rates

In the past, any reduction in bond purchases by the Federal Reserve (tapering) was quickly followed by a hike in short-term interest rates. As these two exits from highly expansionary monetary policies took place one after the other, the announcement of the reduction in purchases led to a rise in long-term interest rates. Today, however, the Federal Reserve has announced that it will completely decouple tapering from a rate hike. An announcement of a reduction in bond purchases no longer drives up long-term interest rates at all (we have just seen this in the United States), partly because it no longer announces a hike in short-term interest rates, and partly because investors understand that it is the stock of bonds held by the central bank that influences long-term interest rates, not the flow of bond purchases.