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Predicting the Markets:Chapter 9 Charts:Predicting the Fed

Yardeni Research, Inc.

June 12, 2020

Dr. Edward YardeniChief Investment Strategist

Mali QuintanaSenior Economist

[email protected]

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thinking outside the box

Table Of Contents Table Of ContentsTable Of Contents

June 12, 2020 / Chapter 9 Charts: Predicting the Fed www.yardeni.com


Predicting the Fed 1-12

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 2520

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297.3 5.0 19.4 220.4 290.3 39.3

FED CHAIRS & S&P 500(monthly, ratio scale)

May

Martin Burns Miller Volcker Greenspan Bernanke Yellen Powell

Note: Shades denote terms of Fed chairs. Data above timeline are percentage changes in the S&P 500 index during each term.Source: Standard & Poor’s.

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Figure 1.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 250

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FED CHAIRS & US TREASURY 10-YEAR YIELD(percent, weekly)

6/12


Note: Shades denote terms of Fed chairs. Monthly data from April 1953 to December 1961, then weekly.Source: US Treasury.

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Figure 2.

Predicting the Fed

Page 1 / June 12, 2020 / Chapter 9 Charts: Predicting the Fed www.yardeni.com


51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25-4

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FED CHAIRS & CPI(yearly percent change)

May


Note: Shades denote terms of Fed chairs.Source: Bureau of Labor Statistics.

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Figure 3.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 252

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FED CHAIRS & WEST TEXAS INTERMEDIATE CRUDE OIL PRICE(dollars per barrel, monthly, ratio scale)

MayMay


Note: Shades denote terms of Fed chairs.Source: Haver Analytics.

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Figure 4.

Predicting the Fed



51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 250

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FED CHAIRS & AVERAGE HOURLY EARNINGS*(yearly percent change)

May


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* Production & nonsupervisory workers.Note: Shades denote terms of Fed chairs.Source: Bureau of Labor Statistics.

Figure 5.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 2575

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FED CHAIRS & CRB RAW INDUSTRIAL SPOT PRICE INDEX(ratio scale, weekly)

6/9


Note: Shades denote terms of Fed chairs.Source: Commodity Research Bureau.

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Figure 6.

Predicting the Fed



51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 2530

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FED CHAIRS & GOLD PRICE*(daily, ratio scale)

6/11


* Cash price. London gold bullion, PM Fix. Monthly from 1968 through 1974, then daily.Note: Shades denote terms of Fed chairs.Source: Commodity Research Bureau.

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Figure 7.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 2560

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FED CHAIRS & MAJOR TRADE-WEIGHTED DOLLAR INDEX*(index=March 1973= 100, weekly)

12/27


* Major index countries whose currencies are included are the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden. TheEuro Area includes Germany, France, Italy, Netherlands, Belgium/Luxembourg, Ireland, Spain, Austria, Finland, Portugal, and Greece.Note: Shades denote terms of office of Fed chairs.Source: Federal Reserve Board.

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Figure 8.

Predicting the Fed



51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 250

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FED CHAIRS & FEDERAL FUNDS RATE(percent, weekly)

6/3


Note: Shades denote terms of Fed chairs.Source: Federal Reserve Board.

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Figure 9.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 250

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FED CHAIRS & DISCOUNT RATE*(percent, weekly)

6/10


Note: Shades denote terms of Fed chairs.

* Discount window borrowing rate at the Federal Reserve Bank of New York was discontinued after January 8, 2003 and replaced by the rate chargedfor primary credit.

Source: Federal Reserve Board.

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Figure 10.

Predicting the Fed



51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 252

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FED CHAIRS & PRIME RATE(percent, weekly)

6/10


Note: Shades denote terms of Fed chairs.Source: Federal Reserve Board.

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Figure 11.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 252

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FED CHAIRS & UNEMPLOYMENT RATE(percent)

May


Note: Shades denote terms of Fed chairs.Source: Bureau of Labor Statistics.

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Figure 12.

Predicting the Fed



51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 255

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FED CHAIRS & S&P P/E BASED ON TRAILING EARNINGS*

Q1


Average = 15.1

Note: Shades denote terms of Fed chairs.* Using quarterly average of daily data for S&P 500 price index, and 4-quarter trailing reported earnings through Q3-1988, then operating earnings.

Source: Standard & Poor’s.

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Figure 13.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 250

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EXISTING MEDIAN SINGLE-FAMILY HOME PRICES(thousand dollars, 12-month moving average)

AprMartin Burns Miller Volcker Bernanke Yellen Powell

Note: Shades denote terms of Fed chairs.Source: National Association of Realtors.

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Figure 14.

Predicting the Fed



51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23-5

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Bernanke’sGM Speech

REAL GDP(yearly percent change)

Q1

Great Moderation

Source: Bureau of Economic Analysis.

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Figure 15.

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 230

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Bernanke’sGM Speech

REAL GDP IMPLICIT PRICE DEFLATOR(yearly percent change)

Q1

Great Moderation

Source: Bureau of Economic Analysis.

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Figure 16.

Predicting the Fed



2008 2009 2010 2011 2012 2013 2014 2015.4

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QE1 QE2 QE3

FED’S ASSETS: 2008-2015*(trillion dollars)

Total AssetsUS Treasuries+ Agency Debt+ MBS

Note: QE1 (11/25/08) = Fed starts buying $1.24tn in mortgage securities. QE1 expanded (3/16/2009) = Fed starts buying $300bn in Treasuries.QE2 (11/3/10) = Fed starts buying $600bn in Treasuries. QE3 (9/13/12) = Fed starts buying $40bn/month in mortgage securities (open ended).QE3 expanded (12/12/12) = Fed starts buying $45bn/month in Treasuries.

* Average of daily figures for weeks ending Wednesday.


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Figure 17.

2008 2009 2010 2011 2012 2013 2014 2015.0

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QE1 QE2 QE3

FED’S ASSETS: 2008-2015*(trillion dollars)

Agency Debt +MBS

US TreasurySecurities

MBS

Note: QE1 (11/25/08) = Fed starts buying $1.24tn in mortgage securities. QE1 expanded (3/16/2009) = Fed starts buying $300bn in Treasuries.QE2 (11/3/10) = Fed starts buying $600bn in Treasuries. QE3 (9/13/12) = Fed starts buying $40bn/month in mortgage securities (open ended).QE3 expanded (12/12/12) = Fed starts buying $45bn/month in Treasuries.

* Average of daily figures for weeks ending Wednesday.


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Figure 18.

Predicting the Fed



93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22-2

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EUROZONE: GOVERNMENT 10-YEAR BOND YIELDS(percent)

Feb

Bond Yields

Spain

FranceGermanyItaly

Source: Financial Times.

Note: D (7/26/12) = ECB President Mario Draghi pledged to do "whatever it takes" to defend the euro. NIRP (6/5/2014) = negative interest-rate policy.QE (1/22/15) = quantitative easing. QEE (3/10/16) = expansion and extension of QE with corporate bond purchases started 6/1/16. QT (12/31/2018).

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Figure 19.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022-5

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D QENIRP QEE QT

EUROZONE: GOVERNMENT 10-YEAR BOND YIELDS(percent, daily)

6/12

Bond YieldsGreeceItalyIrelandPortugalSpain

Note: D (7/26/12) = ECB President Mario Draghi pledged to do "whatever it takes" to defend the euro. NIRP (6/5/2014) = negative interest-rate policy.QE (1/22/15) = quantitative easing. QEE (3/10/16) = expansion and extension of QE with corporate bond purchases started 6/1/16. (12/31/2018).Source: Financial Times.

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Figure 20.

Predicting the Fed



2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20220

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QED NIRP QEE QT

ECB ASSETS: LOANS & SECURITIES(trillion euros, weekly)

6/5

6/5

ECB Holdings

Loans to Euro AreaCredit Institutions in Euro

Securities of Euro AreaResidents in Euro

D = ECB President Mario Draghi pledged to do "whatever it takes" to defend the euro (7/26/12). NIRP = negative interest-rate policy (6/5/2014).QE (1/22/15). QEE = expansion and extension of QE (3/10/16, corporate bond purchases started 6/1/16). (12/31/2018).Source: European Central Bank.

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Figure 21.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022.0

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QED NIRP QEE QT

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ECB ASSETS(trillion euros)

ECB AssetsTotal (5.7)Securities of Euro AreaResidents in Euro (3.3)

D = ECB President Mario Draghi pledged to do "whatever it takes" to defend the euro (7/26/12). NIRP = negative interest-rate policy (6/5/2014).QE (1/22/15). QEE = expansion and extension of QE (3/10/16, corporate bond purchases started 6/1/16). QT (12/31/2018Source: European Central Bank.

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Figure 22.

Predicting the Fed



96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22160

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NIKKEI & YEN(stock index in local currency) Nikkei

Yen/US Dollar(inverted scale)

Source: Haver Analytics.

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Figure 23.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20220

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CHINA: M2 & BANK LOANS(trillion US dollars)

M2Bank Loans (nsa)

Source: People’s Bank of China.

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Figure 24.

Predicting the Fed



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