US Monetary Policy: Fed Policy Cycle January, 1 Dr. Edward Yardeni 1-97-73 eyardeni@ Debbie Johnson --1333 djohnson@ Mali Quintana --1333 aquintana@ Please visit our sites at www. blog. thinking outside the box
Table Of Contents Table Of Contents Crises Cycles 1 Fed Funds Rate & -Year Bond Yield Yield Spread 3 S&P Index Resource Utilization Leading & Coincident Indicators Consumer Price Index 7 GDP January, 1 / Fed Policy Cycle www.
Figure 1. FEDERAL FUNDS RATE & FINANCIAL CRISES (percent, weekly) Crises Cycles 1997 Pacific Rim 19 Continental Illinois 199 S&L Crisis 199 Mexican Peso 1 9/11 Attacks 7 Subprime Meltdown 1 197 Penn Central 197 Franklin National 197 Black Monday Tech Bubble 199 Russia & LTCM Lehman & AIG 1 19 Silver Bubble 19 Drysdale & Mexico 7 7 7 7 7 9 9 9 9 9 1 1 1 1/17 Figure. US TREASURY -YEAR BOND YIELD (percent, weekly) 1997 Pacific Rim 1 19 Continental Illinois 199 S&L Crisis 199 Mexican Peso 1 9/11 Attacks 7 Subprime Meltdown 1 197 Penn Central 197 Franklin National 197 Black Monday Tech Bubble 199 Russia & LTCM Lehman & AIG 19 Silver Bubble 19 Drysdale & Mexico 1/19 7 7 7 7 7 9 9 9 9 9 1 1 1 Page 1 / January, 1 / Fed Policy Cycle www.
1 1 1 Figure 3. Fed Funds Rate & -Year Bond Yield FEDERAL FUNDS RATE (percent, weekly) 1 1 1-1/17 7 7 7 7 7 9 9 9 9 9 1 1 1-1 1 Figure. US TREASURY -YEAR BOND YIELD (percent, weekly) 1 1 1 1 1/19 7 7 7 7 7 9 9 9 9 9 1 1 1 Monthly through 19, then weekly. Page / January, 1 / Fed Policy Cycle www.
Figure. Yield Spread US YIELD CURVE* (basis points) 1/19 - - - - - - - 7 7 7 7 7 9 9 9 9 9 1 1 1 - * -year Treasury yield less federal funds rate. Monthly through 197, then weekly. Figure. YIELD SPREAD CORPORATE & TREASURY -YEAR BONDS (basis points, monthly) Yield Spread of Baa Corporate Bond* & Treasury -Year Bond (1.) 3 3 7 7 7 7 7 9 9 9 9 9 1 1 1 * Moody s seasoned Baa corporate bond yield from 19 to 199, then Bank of America Merrill Lynch A-BBB corporate bond yield. Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Page 3 / January, 1 / Fed Policy Cycle www.
7 9 1 139 Figure 7. P T P T P T PT P T PT PT P T S&P (monthly, ratio scale) S&P Index 7 9 1 139 9 9 9 9 7 7 7 7 7 9 9 9 9 9 1 1 1 Business cycle peaks (P) and troughs (T) according to the National Bureau of Economic Research. Source: Standard & Poor s. Figure. P T P T P T PT P T PT PT P T S&P Reported Trailing P/E 19-197 S&P Forward P/E* 1979-present 1 1/1 1 1 1 1 1 7 7 7 7 7 9 9 9 9 9 1 1 1 * S&P divided by year-ahead forward consensus expected operating earnings per share. Monthly through April 199, then weekly. Business cycle peaks (P) & troughs (T) according to the National Bureau of Economic Research. Source: Thomson Reuters I/B/E/S and Standard & Poor s. Page / January, 1 / Fed Policy Cycle www.
9 Figure 9. Resource Utilization 9 9 9 9 Employment Rate* 7 9 Capacity Utilization: Total 7 7 7 7 7 9 9 9 9 9 1 1 1 * minus unemployment rate. Source: Bureau of Labor Statistics and Federal Reserve Board. 9 9 9 Figure. RESOURCE UTILIZATION RATE* (percent) 9 9 9 9 9 9 9 7 7 7 7 7 7 9 9 9 9 9 1 1 1 7 * Average of all industries capacity utilization rate plus employment rate, i.e., percentage of labor force that is employed. Source: Bureau of Labor Statistics and Federal Reserve Board. Page / January, 1 / Fed Policy Cycle www.
Leading & Coincident Indicators Figure 11. 1 1 13 13 LEADING ECONOMIC INDICATORS 13 Nov 13 (=) 11 11 1 1 9 9 9 9 7 7 7 7 3 3 3 3 7 7 7 7 7 9 9 9 9 9 1 1 1 Source: The Conference Board. 11 1 9 9 7 7 3 3 Figure. COINCIDENT ECONOMIC INDICATORS (=) 3 7 7 7 7 7 9 9 9 9 9 1 1 1 Nov 11 1 9 9 7 7 3 Source: The Conference Board. Page / January, 1 / Fed Policy Cycle www.
1 Figure 13. CONSUMER PRICE INDEX (yearly percent change) Consumer Price Index 1 1 1 1 Consumer Price Index (.1) Ex Food & Energy (1.) 1 - - 7 7 7 7 7 9 9 9 9 9 1 1 1 - - Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Bureau of Labor Statistics. 1 1 1 Figure 1. CONSUMER PRICE INDEX (yearly percent change) Consumer Price Index (.1) Ex Food & Energy (1.) 1 1 1 - - 7 7 7 7 7 9 9 9 9 9 1 1 1 - - Source: Bureau of Labor Statistics. Page 7 / January, 1 / Fed Policy Cycle www.
Figure 1. REAL GDP (yearly percent change) GDP Total (.3) Q3 - - - 7 7 7 7 7 9 9 9 9 9 1 1 1 - Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Bureau of Labor Statistics. 1 Figure 1. REAL GDP (yearly percent change) 1 Total (.3) Q3-7 7 7 7 7 9 9 9 9 9 1 1 1 - Source: Bureau of Labor Statistics. Page / January, 1 / Fed Policy Cycle www.
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