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Fed Model

   Also found in: Wikipedia 0.40 sec.
Fed Model
A model thought to be used by the Federal Reserve that hypothesizes a relationship between long-term treasury notes and the market return of equities.

Notes:
The Fed doesn't endorse this tool. In fact, it was named the"Fed model" by Prudential Securities strategist Ed Yardeni.

This model believes that returns on 10-year treasury notes should be similar to the S&P 500 earnings yield. Differences in these returns identify an over-priced or under-priced securities market.



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Indeed, the Fed model, the source of Alan Greenspan's infamous "irrational exuberance" comments, now shows US stocks on consensus estimates at some 33 percent undervalued relative to bonds.
The Fed Model developed by the Dent organization continues to indicate that the equity markets are significantly undervalued.
The Fed Model indicates the greatest buying opportunity since the early 1920s for stock market investors from late 2002 into 2004.
 
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