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A Tale of Two Tapers

CAMBRIDGE – The United States Federal Reserve and the People’s Bank of China are not typically seen as two peas in a pod. But they have had similar experiences in recent weeks – and neither has been a pleasant one.

The Fed’s bout of indigestion started with Chairman Ben Bernanke’s June 19 press conference, where he warned that the Fed’s purchases of long-term securities might start to taper off if the economy continued to perform well – specifically, if unemployment fell to 7%. Stock prices swooned. Yields on US Treasuries spiked. Emerging-market currencies weakened on fears that capital flows from the US would reverse direction.