what caused the 2013 taper tantrum 
in 2013 federal reserve chair ben bernanke announced that the fed would at some future date reduce the volume of its bond purchases in the period since the 2008 financial crisis the fed had tripled the size of its balance sheet from around 1 trillion to around 3 trillion by purchasing almost 2 trillion in treasury bonds and other financial assets to prop up the market investors had come to depend on ongoing massive fed support for asset prices through its ongoing purchases this prospective policy of reducing the rate of fed asset purchases represented a massive negative shock to investor expectations as the fed had become one of the worlds biggest buyers as with any reduction in demand with reduced fed purchases bond prices would fall bond investors responded immediately to the prospect of future decline in bond prices by selling bonds depressing the price of bonds as a result of course falling bond prices always mean higher yields so yields on u s treasuries shot up it is important to note that no actual sell off of fed assets or tapering of the fed s quantitative easing policy had occurred at this point chair bernanke s comments referred only to the possibility that at some future date the fed might do so the extreme bond market reaction at the time to a mere possibility of less support in the future underscored the degree to which bond markets had become addicted to fed stimulus many pundits believed that the stock market could follow suit since the money flowing into the economy from the fed through bond purchases was also widely understood to be supporting stock prices if so this market reaction to the prospect for fed tapering could potentially sink the economy instead the dow jones industrial average djia made only temporary declines in mid 2013 investopedia laura porter