Evidence Investing

 
 
Good article from Bloomberg regarding Fed Funds Rate and inflation.  Check out the full article here.   [Graphs, editing, and emphasis were added by me]

“The latest surge in U.S. stocks may have more to do with historically low interest rates than any rebound in the economy and corporate earnings,” according to Peter Boockvar, an equity strategist at Miller Tabak & Co. 

The Fed’s funds rate has been negative since November in real terms, adjusted for inflation.
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The S&P 500 showed a 17 percent gain for the same period as of April 14th. The followed a two-month rally that accounts for most of the index’s advance since the real rate fell below zero.
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The central bank’s target rate for overnight loans between banks, or federal funds, currently stands at minus 2 percent on an inflation-adjusted basis.
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Correlate this with the Inflation levels seen following the negative real rates in the 1970's
“What’s real and what’s artificial, what’s organic growth and what’s juiced by easy money” can’t be determined with rates at current levels, wrote Boockvar. The question will only be answered, he added, when rates start to increase and the economy must function “without the crutch of cheap money.” 

Futures on federal funds indicate the central bank may abandon its zero-rate policy in November or December, according to data compiled by Bloomberg. The odds of a higher target rate in those months are 51 percent and 69 percent, respectively.”

How do ya like low rates now??  :)
 


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