U.S. Money Market Fund Assets and Fed Funds Rate The current environment suggests that a substantial amount of capital is poised to flow back into equity markets, driven by expectations of favorable economic conditions and monetary policy adjustments. Image: Goldman Sachs Global Investment Research
S&P 500 Index and Fed Funds Effective Rate While Fed rate cuts typically provide a short-term boost to market sentiment, historical trends suggest they often coincide with economic slowdowns. Image: Real Investment Advice
U.S. Recessions – 6-Month Fed Funds Minus Current Fed Funds Rate Historically, U.S. recessions have often followed periods of bearish short-term interest rates, particularly when the Fed cuts rates in response to economic downturns or signs of slowing growth. Image: BofA Research Investment Committee
S&P 500 TTM YoY EPS vs. Fed Funds Target Traditionally, when the Fed starts cutting interest rates, corporate profits tend to decelerate. However, this’s not the case today, highlighting the unique economic landscape we face. Image: BofA US Equity & Quant Strategy
U.S. Fed Funds Target Rate While “panic rate cuts” have historically been associated with negative market outcomes, the current context suggests that Wall Street may be embracing these cuts as necessary adjustments rather than signs of economic distress. Image: BofA Global Investment Strategy
Implied Fed Funds Target Rate The dot plot shows a median projection for the federal funds rate to decrease to 4.38% by the end of 2024 and further down to 3.38% by the end of 2025, signaling a shift towards a more accommodative monetary policy. Image: Bloomberg
Fed Funds Rate and Fed Funds Futures Deutsche Bank’s forecast for the federal funds rate is significantly more hawkish than many mainstream projections, anticipating modest reductions in 2025. Image: Deutsche Bank
2-Year U.S. Treasury Yield – Fed Funds Rate The current spread between the 2-year U.S. Treasury yield and the federal funds rate suggests that the bond market perceives the Federal Reserve’s monetary policy as tight. Image: Morgan Stanley Wealth Management
Fed Funds vs. 2-Year U.S. Treasury Yield (Leading Indicator) The current 2-year U.S. Treasury yield, which is below the federal funds rate, indicates that the Fed’s monetary policy is restrictive. Furthermore, the 2-year yield typically leads the fed funds rate by about 20 weeks. Image: Morgan Stanley Research
Market-Implied Change in Fed Funds Rate Traders are anticipating a significant shift in the Fed’s interest rate policy, predicting a total of 223 bps in cuts over the next 12 months due to weakening economic indicators, such as rising unemployment and easing inflation. Image: Goldman Sachs Global Investment Research