Does the Fed Impact Stock Prices?
Posted: 5 Oct 2017
Date Written: October 4, 2017
The influence of the Fed’s actions on equity prices has been a source of significant speculation in recent years. This paper uses a well-regarded measure for the “fair” value of interest rates to measure the degree to which the Fed is influencing interest rates, 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.
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