Fed Funds Rate and Equities: What's the Lag?

The Fed Funds Rate peaked at 7.03% in 2000.  The target rate was 6.5% in 2000, and was first dropped on January 3, 2001 to 6%.  It eventually bottomed at 1% on June 24, 2003.

This was the so-called tech bubble, so I'm tracking the NASDAQ.

The NASDAQ peaked at 5049 on March 10, 2000 and declined 78% to 1114 on October 9, 2002.

The Fed Funds Rate peaked at 5.41% in 2007.  The target rate was 5.25% until August 7, 2007.  The Fed dropped it to 4.75% on September 18, 2007.  It eventually bottomed at 0% on December 15, 2008.

This was the Great Financial Crisis, so I'm using the S & P 500 Index.

The S & P 500 peaked at 1565 on October 9, 2007 and declined 57% to 677 on March 9, 2009.

The takeaway message?  The Fed was late in dropping the targeted Fed Funds Rate, finally acting on January 3, 2001, a lag of 10 months after the NASDAQ peaked in March, 2000.  And the NASDAQ continued to plummet even as the FFR continued to decline.  In fact, the bottom in the NASDAQ tech bubble didn't occur until October, 2002, some 21 months after the Fed initially dropped the FFR.

With the Great Financial Crisis, the Fed acted more quickly, initially dropping the FFR in September, 2007. a month before the S & P 500 started cratering in October, 2007.  However, the Fed's aggressive easing did not prevent the S & P 500 from declining 57% to its March, 2009 bottom, thanks to the bank bailouts (TAFP, TALF, P-PIP, etc.).

In 2023, despite bank runs and another brewing financial crisis, the Fed continues to raise its targeted FFR.  When they finally do pivot and drop the FFR, it will probably be too little and too late.  Based on the two most recent cycles (and this one should be worse as debt loads and the insolvent Fed's balance sheet is more leveraged than ever), we can expect equities to face severe headwinds for the next 12 to 24 months, post-FFR finally declining (probably this summer).  The silver lining in all this is the S & P 500 peaked on December 29, 2021 at 4793, so we are off our all-time highs (currently 4109 at the time of this writing).  The key question then becomes is the bottom in?  Will bank runs be ring-fenced and contagion avoided?  And how much liquidity will be needed to prevent contagion of counterparty risks?  Monetary authorities have hinted at between $2 trillion and $18 trillion.

A side effect will be inflation as the Fed and US Treasury will provide trillions in liquidity and credit in an attempt to cushion collapsing financial markets if they do indeed collapse, with the latest vehicle dubbed the BTFP.  https://www.federalreserve.gov/monetarypolicy/bank-term-funding-program.htm

Foreign financial institutions will also be feeding at the trough in the form of currency swaps.

But don't worry, it's not "QE", so all is well.  /sarcasm

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Swiss Firm Issues Major Warning About QE-To-Infinity, Gold, Silver And The Great Reset

https://kingworldnews.com/qe-to-infinity-gold-silver-and-the-great-reset/

QE Punch Bowl Disappears in 2019

The Fed needs to QT so when markets and the economy plummet, they'll resort to QE.

What China's Treasury Liquidation Means: $1 Trillion QE In Reverse

http://www.zerohedge.com/news/2015-08-27/what-chinas-treasury-liquidation-means-1-trillion-qe-reverse

For The First Time Ever, QE Has Officially Failed

This is the other side of unintended consequences.  The QE mechanism is rather esoteric, so to put it in layman's terms:  what goes up, must come down.  With rising yields, bond prices drop, which will tank the equities and real estate markets.

Another way to put it is:  there is no free lunch.  Running the money printing press doesn't build long-term wealth.  It enables capital misallocation and increases the debt burden.

http://www.zerohedge.com/news/2015-06-25/first-time-ever-qe-has-officially-failed

Boston Fed Admits There Is No Exit, Suggests QE Become "Normal Monetary Policy"

QE to infinity, bitchez!

http://www.zerohedge.com/news/2015-04-26/boston-fed-admits-there-no-exit-suggests-qe-become-normal-monetary-policy

Finally The "Very Serious People" Get It: QE Will "Permanently Impair Living Standards For Generations To Come"

"First they ignore you, then they laugh at you, then they fight you, then you win". -

Mahatma Gandhi

http://www.zerohedge.com/news/2015-03-28/finally-very-serious-people-get-it-qe-will-permanently-impair-living-standards-gen

When "very serious people" (even if it is those who once ran now defunct Bear Steanrs) announce it, with a 6 year delay, they make the Financial Times.

On the other hand, when Zero Hedge said precisely this 6 years ago, it was cast as a tin-foil clad group of conspirators who see the worst in every situation.

What is "it"? This:

The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

In this case, it was said this week by Guggenheim's Chairman of Investments and Global Chief Investment Officer, Scott Minerd. We are happy that increasingly more "serious people" come to the same conclusion which we posited first a 6 years ago.

Why the Fed Will Launch Another Round of QE

I agree with the author that the Fed will continue QE.  I disagree that the process will have benign effects.  The Fed's balance sheet will be bloated beyond comprehension and will further impair our nation's insolvency.

http://dailyreckoning.com/why-the-federal-reserve-will-launch-another-round-of-qe/

"QE Benefits Mostly The Wealthy" JPMorgan Admits, And Lists 8 Ways ECB's QE Will Hurt Everyone Else

It took JPMorgan six years to figure this $hit out?  That QE benefits the wealthy--at the expense of the masses?  Really?  Thanks for that breakthrough insight for the geniuses at JPMorgan.

http://www.zerohedge.com/news/2015-01-24/qe-benefits-mostly-wealthy-jpmorgan-admits-and-lists-8-ways-ecbs-qe-will-hurt-everyo

SocGen Explains That Since The ECB's QE Will Fail, It Will Need To Be Increased To €3 Trillion, Include Stocks

And to think that SocGen would point to Japan as the shining example of the Keynesian experiment as a success?

http://www.zerohedge.com/news/2015-01-22/socgen-explains-ecbs-qe-will-fail-it-will-need-be-increased-%E2%82%AC3-trillion-buy-stocks

QE isn’t dying, it’s morphing

http://www.nomiprins.com/thoughts/2014/11/10/qe-isnt-dying-its-morphing.html

QE’s Seeds are Already Sown

http://mises.ca/posts/blog/qes-seeds-are-already-sown/

Gold’s Rise & A Stunning Decision To Reverse Policy On QE

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/7/11_Golds_Rise_%26_A_Stunning_Decision_To_Reverse_Policy_On_QE.html

"QE Was A Massive Gift Intended To Boost Wealth", Fed President Admits

So much for Obama's claims of helping the average person.

http://www.zerohedge.com/news/2014-03-21/qe-was-massive-gift-intended-boost-wealth-fed-president-admits

Man Who Ran First QE Owns Gold & Warns Of Coming Inflation

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/2/21_Man_Who_Ran_First_QE_Owns_Gold_%26_Warns_Of_Coming_Inflation.html

Man Who Executed QE1 For Fed Says Stocks May Collapse 30%

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/2/21_Man_Who_Executed_QE1_For_Fed_Says_Stocks_May_Collapse_30.html

Fed Tapering Into Weakness, Tangent's Rickards Says

http://www.bloomberg.com/video/fed-tapering-into-weakness-tangent-s-rickards-says-cYc~gR9dSmSqz2gdI7i0Ig.html

One Of The Most Terrifying Predictions For The Year 2014

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/24_One_Of_The_Most_Terrifying_Predictions_For_The_Year_2014.html

Peter Schiff Was Right - 'Taper' Edition

Peter Schiff and I were right all along.  The Fed is trapped so they cannot taper QE.  And if they had tapered, markets would crash, and they would have to reverse course and gin up QE even more.  Which means they lose whatever little credibility they have left.

But the Fed and all the experts have to jawbone tapering/ending QE.  Hell, they've been cheerleading economic "green shoots" since the recession "ended" in 2009.

I like how the consensus mocked Schiff, as they did in 2006 when he rang the alarm bells.  And then the clowns, er...the "pundits" on CNBC have the gall to say "nobody saw it coming."  What a bunch of shills...

Janet Yellen will regret winning the appointment as Fed Chairperson because the USS Titanic will sink on her watch.


http://youtu.be/Tak9ODlBJgM

Keiser Report: Banksters' God Complex

http://youtu.be/QkTb8FrQ9ow