Fed Chairman Ben Bernanke no doubt drew from his own research when deciding upon today's interest rate cut, including the study I noted last Thursday, as seen below. The study helps put in perspective the size of the cut, the extra 25 basis points.
If you want to know what Bernanke thinks about the impact of Fed policy on stock prices, then read his 56-page March 2004 study on "What Explains the Stock Market's Reaction to Federal Reserve Policy?" One notable conclusion was that "on average, a hypothetical unanticipated 25-basis-point cut in the federal funds rate target is associated with about a one percent increase in broad stock indexes."
Bernanke clearly recognizes the importance of the element of surprise, and he has used it on occasion in this rate cut cycle, but he has missed recent opportunities, such as on Jan. 4, when weak employment data were released, and last week, a day before he signaled high odds of a 50-basis-point cut.
P.S. Will you be there when Cramer makes his next move?
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Tony Crescenzi Blog Rate Cuts Zoom 1/18/2008 3:15 PM EST The market is priced for a 2.375% fed funds rate at the end of 2008.
Tony Crescenzi Blog No Democrats Were There 1/18/2008 11:53 AM EST The crowd at President Bush's press conference did little to convince the stimulus package is here.
Tony Crescenzi Blog Fed's Window for a Rate Cut Is Closing 1/18/2008 11:21 AM EST Any cut after 2 p.m. today and before the next meeting would smack of panic.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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