The Federal Reserve and the Market
Brian Trumbore
President/Editor, StocksandNews.com

Following is an update of a piece I did last July.

***

The Federal Reserve raised its benchmark federal funds rate to 6.50% back on May 16, 2000, then embarked on its policy of slashing interest rates on January 3, 2001. From 1/3/01 through 6/25/03, the Fed lowered the funds target to 1.00% with 13 cuts, 9 of 50 basis points (0.50%) each, 4 of 25.

With this in mind, I thought it would be interesting to examine some key figures, including U.S. Treasury yields, by taking month-end figures from my "Week in Review" pieces. One item of note is to remember how the Fed's first 11 cuts left the 10- year exactly where it was one year earlier before the first move. In other words, those trading the long end of the yield curve are a most independent lot. [Not that most of you didn't already know this.]

Of course the Fed only directly influences the short end of the curve, while the long end is dominated by perception; perception of strength in the economy and future expectations for inflation being among the primary factors in setting bond prices.

Note: The * tells you that a Fed rate cut occurred in the period prior to the week ending figures. I also make note of 9/11, as well as the cycle low in the S&P 500 on 10/9/02. Finally, you should know that the 2- and 10-year Treasuries bottomed in yield on 6/13/03?1.01% and 3.10%, respectively.

Week ended?..2-yr.?10-yr. ?S&P 500?..Gold

12/29/00??...5.09?..5.11??..1320??...272
1/6/01???...4.56?..4.93??..1298??...269 * (1)
1/27/01???.4.77?..5.27??..1354??...263
2/24/01???.4.52?..5.09??..1245??...262 * (2)
3/31/01???.4.18?..4.92??..1160??...259 * (3)
4/28/01???.4.26?..5.32??..1253??...264 * (4)
5/26/01???.4.26?..5.51??..1277??...278 * (5)
6/30/01???.4.24?..5.40??..1224??...271 * (6)
7/28/01???.3.87?..5.10??..1205??...267
8/25/01???.3.73?..4.92??..1184??...275 * (7)
9/29/01???.2.82?..4.58??..1040??...294 * (8) ^9/11
10/27/01??...2.62?..4.52??..1104??...278 * (9)
11/24/01??...3.16?..5.00??..1150??...273 * (10)
12/29/01??...3.16?..5.11??..1161??...276 * (11)
1/26/02???.3.18?..5.07??..1133??...279
2/23/02???.2.92?..4.83??..1089??...293
3/30/02???.3.70?..5.40??..1147??...303
4/26/02???.3.23?..5.08??..1076??...311
5/25/02???.3.22?..5.14??..1083??...320
6/29/02???.2.82?..4.80???989??...314
7/27/02???.2.21?..4.38???852??...304
8/31/02???.2.15?..4.14???916??...313
9/28/02???.1.80?..3.67???827??...321
10/26/02??...1.98?..4.09???897??...313-10/9 S&P 776
11/30/02??...2.06?..4.21???936??...318 * (12)
12/28/02??...1.61?..3.81???875??...349
1/31/03???.1.71?..3.97???855??...369
2/22/03???.1.59?..3.89???848??...351
3/29/03???.1.54?..3.90???863??...332
4/26/03???.1.56?..3.88???898??...333
5/31/03???.1.32?..3.36???963??...365
6/28/03???.1.35?..3.54???976??...345 * (13)
7/26/03???.1.51?..4.18???998??...362
8/30/03???.1.96?..4.46??..1008??...376
9/27/03???.1.55?..4.00???996??...381
10/25/03??...1.72?..4.23??..1028??...389
11/29/03??...2.04?..4.33??..1058??...398
12/27/03??...1.80?..4.15??..1095??...412
1/31/04???.1.83?..4.13??..1131??...403
2/28/04???.1.64?..3.97??..1144??...396

Wall Street History will return 3/12.

Brian Trumbore