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Last updateSat, 29 Jul 2017 12am

Back You are here: Home Market Market Update Insight What happened when the Fed cut its Rate?

What happened when the Fed cut its Rate?

What happened when the Fed cut its rate?

Date Rate Rate Rate PE @ Market Performance
Begin End Peak Trough Cuts First Cut 1m 3m 6m 12m
7-31-74 1-12-76 11.00 4.75 625 10.0x -9.5% -10.8% -3.6% 8.8%
10-1-76 11-26-76 5.50 4.75 75 12.1x -2.9% 3.6% -70.0% 2.9%
4-22-80 8-12-80 16.50 11.00 550 8.1x 7.4% 17.7% 26.9% 28.2%
5-19-81 12-21-81 19.00 12.00 700 10.2x 0.9% -1.3% -6.8% -11.0%
5-18-82 11-16-82 14.00 8.00 600 9.5x -8.2% -9.7% 6.2% 30.0%
8-30-84 12-27-84 11.56 8.13 344 11.8x -0.8% 0.4% 7.3% 19.3%
3-28-85 7-11-85 8.63 7.69 94 12.9x 0.3% 5.8% 9.1% 51.6%
12-18-85 4-24-86 8.00 6.75 125 15.6x 1.2% 19.1% 29.3% 41.9%
7-11-86 8-21-86 6.88 5.88 100 18.8x 2.7% 5.9% 13.1% 43.2%
10-22-87 2-11-88 7.31 6.50 81 21.6x -3.9% -2.1% 11.5% 13.5%
6-6-89 9-4-92 9.81 3.00 684 20.3x 2.5% 6.1% 11.4% 4.8%
7-6-95 1-31-96 6.00 5.25 75 19.1x 1.9% 2.5% 7.1% 12.5%
9-29-98 11-17-98 5.50 4.75 75 20.7x 4.9% 17.6% 21.9% 28.8%
1-3-01 6-25-03 6.50 1.00 550 23.3x 1.2% -16.1% -11.1% -16.9%
Global Average 9.73 6.39 334 15.3x -0.20% 2.80% 8.70% 18.4%
Source: Datastream

The impact, according to Bloomberg, Consensus Economics Inc, Datastream, I/B/E/S, MSCI, JP Morgan, June 18 2007, on average equities perform well over 3 to 12 months after the first rate cut. Total rate cut since Jul 74 till Jun 03 averaged 334 basis points.

In addition, JP Morgan June 2007 highlighted that 12 out of the last 14 Fed busts generated positive returns; 2 period s of negative returns , the first was from May 19, 1981 to Dec 21, 1981 it was due to hyperinflation (US CPI at 14% in 1980) and the second negative returns was from Jan 3, 2001 to Jun 25, 2003 caused by high valuations (ahead of the collapse of the tech bubble).