Federal Funds Rate and the Stock Market
Posted in Economic Indicators
January 18, 2011
Media commentators and expert advisors sometimes cite cuts and hikes in the Federal Funds Rate (FFR) as an indicator of U.S. stock market prospects, with decreases (increases) in FFR acting as a stimulant (depressant). Does the overall U.S. stock market respond systematically to loosening and tightening of credit as measured by cuts and hikes in FFR? Using FFR target changes and daily S&P 500 Index levels over the period January 1990 through December 2010, encompassing 76 changes in FFR (46 cuts and 31 hikes), we find that: (more…)