Accommodating Fed?

Discussion in 'Economics' started by ASusilovic, Jan 11, 2008.

  1. Source :

    Adam Oliensis

    For those worried that the Fed is not being accommodating enough, I'd
    like to point out that at least on one metric the Fed is being at
    least as accommodating as it has been at any point in the last 12

    This chart plots the Y/Y change in the Fed Funds Rate (red) along with
    the Y/Y change in the analysts' consensus for forward 52-wk earnings
    per share, as published by Standard & Poor's.

    The correlation between the 2 series is extremely strong.



    When the red line is below the blue line and falling, the Fed can be
    considered to be accommodating. When the blue line is below the red
    line and falling the Fed can be considered to be behind the curve.

    There are only 2 other periods on this chart when the Fed was as
    accommodating as it has lately been: in '95-'96 at the left of the
    chart when the red line was falling from 2%+ down to about -1%; in
    '03-'04 when the Fed let the red line stay below 0% as the blue line
    soared up to +20%.

    The market responded quite strongly subsequent to both periods of
    accommodation and the Fed met with, if anything, criticism for being
    too easy for too long!

    The Fed may be going slower than you'd like, but they're moving with
    alacrity by the standards of government institutions.

    And if they were going faster ... well, what kind of shape would the
    dollar be in, what would oil cost, and what would the
    "stagflationists" be saying?
  2. Janed


    At the time of the '95/'96 cuts there was no crises compounding things. The current subprime related cutting is much more similar to those dips following the LTCM and 911 crises.