Skip navigation
MOST POPULAR RELATED TAGS
  • TOPICS
  • SECTORS
  • COMPANIES

Current DateTime: 04:39:04 16 Nov 2009
LinksList Documentid: 23371764

RSS FEED

» Help

Current DateTime: 04:39:04 16 Nov 2009
LinksList Documentid: 30111251
powered by digg
Fast Money DisclaimerFast Money BiosAbout Fast MoneyRapid RecapFast Money Home
Text Size
Jan.29
11:31 AM ET
Tuesday, 29 Jan 2008
Markets Past Reactions to Fed Easing

Most investors are expecting another cut to the Fed Funds Target when the Federal Open Market Committee meets tomorrow.  The debate has been whether it will be a cut of 25 or 50 bps.  Here are some recent trends and facts on the Fed and the Fed Funds rate as well as a look at how the market performed the last time the Fed went into an extended phase of easing:

Current Streak
Beginning in Sept, The Fed has decreased the Fed Funds Target in 3 straight meetings plus the intermediate cut set last Tues

  • 50 bp cut - 9/18/07 rate went from 5.25 to 4.75
  • 25 bp cut - 10/31/07 rate went from 4.75 to 4.50
  • 25 bp cut - 12/11/07 rate went from 4.50 to 4.25
  • 75 bp cut - 1/22/07 rate went from 4.25 to 3.50

Recent History

  • Before the current cuts, the rate stayed at 5.25% for 10 straight FOMC meetings beginning in June 2006
  • The Last time rates were cut below 3.5% was on 9/17/2001 after the 9/11 attacks.  Rates were lowered 50 bps from 3.50 to 3.00%
  • The last wave of easing began on 1/3/01 and continued through 6/25/2003  - the fed funds rate went from 6.5% to 1.00% over the 2.5 year period with two pauses along the way
    • At 1.75% from Dec 2001 through Oct. 2002
    • At 1.25% from Nov. 2002 through June 2003
  • There was a short wave of easing in 1998 that took rates from 5.50% to 4.75% with three consecutive 25 bp cuts

Markets during last loosening period (Jan 3, 2001 through June 25, 2003)

  • Dow lost 1934 points or 17.7% (from 10,946 to 9,011)
  • S&P 500 lost 372 points or 27.6% (from 1,347 to 975)
  • NASDAQ lost 1014 points or 38.8% (from 2,617 to 1,603)

Earlier periods of easing

  • Sept 1998 - Nov 1998: Rates went from 5.50% to 4.75% over 2 months, Dow up 11%
  • July 1995 - Jan 1996: Rates went from 6.00% to 5.25% over 7 months, Dow up 16%

What will Fed Chair Bernanke announce?

The Street is debating whether the Fed will cut their target rate 50 or 25 basis points in the current FOMC meeting.  Current probabilities point to an ~80% chance of a 50 bp cut but are falling from earlier this month on today's good durable goods number.

General Fed Facts (from www.federalreserve.gov):

  • The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy
  • Three tools of monetary policy
    • Open Market Operations - the purchase and sale of U.S. Treasury and federal agency securities to affect the Fed Funds rate
    • Discount Rate - setting the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window
    • Reserve Requirements - defining the amount of funds that a depository institution must hold in reserve against specified deposit liabilities
  • FOMC Structure
    • Twelve members-- 7 members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and 4 of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis
    • 8 regularly scheduled meetings per year plus additional meetings as needed
© 2009 CNBC.com

Tools:
PrintEmailAdd This share icon
Next Post
  • digg share

CNBC HIGHLIGHTS

  • CNBC's Jim Goldman asks: Has the sun begun to set on Twitter? Data suggests its best days are over.
  • Everyone wanted a piece of Madoff's "Bullship"--the famous buoy sold for $7,500 at auction. You won't believe these prices.
  • De Loach Vineyards is selling its pinot noir the old fashioned way, helping to cut energy and transportation costs.
  • Why are the Chinese concerned about the progress of U.S. health care legislation?
  • Snoop Dogg
  • CNBC's Maria Bartiromo talks to rapper Snoop Dogg about brand identity in both business and music.
ADD COMMENTS
Remaining characters


Current DateTime: 01:12:16 16 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 10:28:53 16 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 04:01:03 16 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 10:42:55 16 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters