Does the Fed Impact Stock Prices?

The influence of the Fed’s actions on equity prices has been a source of significant speculation in recent years. This article uses a well-regarded measure for the “fair” value of interest rates to measure the degree to which the Fed is influencing interest rate and then relates that level of interf...

Full description

Saved in:
Bibliographic Details
Published in:Journal of Investing 2019-02, Vol.28 (1), p.55-63
Main Authors: McDonald, Michael B., Puleo, Michael, Shadmani, Hedieh
Format: Article
Language:English
Subjects:
Central banks
Economic models
Equity
Federal Reserve monetary policy
GDP
Gross Domestic Product
Inflation
Interest rates
Rates of return
Securities markets
Stock exchanges
Stock prices
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The influence of the Fed’s actions on equity prices has been a source of significant speculation in recent years. This article uses a well-regarded measure for the “fair” value of interest rates to measure the degree to which the Fed is influencing interest rate and then relates that level of interference to equity returns. We find that Fed’s actions are correlated with a modest negative impact on US equity prices—that is Fed interference has a slight negative relationship with broader equity returns. In contrast, outside the US, Central Bank interference generally has a stronger positive relationship to equity returns.
ISSN:1068-0896
2168-8613
DOI:10.3905/joi.2019.28.1.055