Fed Funds Rate History

During the last interest rate stimulated stock market recovery after the dot-com bubble popped, the federal reserve raised it's fed funds rate in July of 2004 (click the 'all' label above the chart). At that time, the market was just a bit over 1 year from it's bull market starting point in the late winter of early 2003. Just before the rate rose, the market had stalled and moved sideways a bit before making it's long run to the 2007 top.

Currently we are about at the same time frame from this markets launch point in the late winter of early 2009. With fed funds still sloshing around at the bottom of the barrel, and unborrowed reserves at astronomical levels, there's no reason to expect the funds rate to rise any time soon. The fed would have to sell everything they have into the repo-market to pull the excess reserves out of the system and get the funds rate to budge even a little.

So if they do want to raise rates, they're going to have to start some serious operations of a different kind to influence this market. Given Bernanke's propensity to come up with creative facilities for implementing policy, there's no telling how or when we will get some insight into their approach. Nevertheless, we are at a juncture where one would expect some kind of policy shift soon, or at least a stock market that takes a breather.

Another reason to anticipate something soon is the closed-door meeting of the board of governors that happened on Monday the 5th. On the weekend that link had the announcement of the unscheduled meeting under special rules of privacy. As we write, it's been removed. Nothing special came out in yesterdays March 16 meeting notes, so we presume the consequences from that meeting won't be known now until the actions are ready to implement.