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Wall Street History
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07/18/2003
The Current Interest Rate Cycle
The Federal Reserve embarked on its current policy of slashing
interest rates back on January 3, 2001. The benchmark Fed
Funds rate had been last raised to 6.50% on May 16, 2000, then
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 benchmarks, 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.
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)
7/16/03 .1.43 ..3.92 994 ...343
Wall Street History will return 7/25.
Brian Trumbore
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