Fed Model


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Fed Model

A theory used by some analysts to determine whether to buy stocks or bonds. The theory postulates that there ought to be relative equality between the yield on the S&P 500 and that of 10-year Treasury notes. If the S&P 500 yield is higher, this indicates that the S&P 500 (and by extension stocks in general) are undervalued; it is seen as a buy signal for stocks. If 10-year note returns are higher, this is seen as a buy signal for bonds. Contrary to the name, the Federal Reserve does not endorse the model.
References in periodicals archive ?
The problem is that the Fed model is "implicitly waiting for things to go back to Cynormal,'" Goolsbee said, but the Fed's model "defines normal as a mean reversion--what happens to the economy when house prices grew 8.
This difference limits the ability to do historical real-time out-of-sample nowcasting exercises with the exact Cleveland Fed model.
Finally, to promote a healthy microbiota, identified breast-milk metabolites will be used to supplement the formula fed model.
Ricardo Lagos, New York University and NBER, and Shengxing Zhang, London School of Economics, "Monetary Exchange in Over-the-Counter Markets: A Theory of Speculative Bubbles, the Fed Model, and Self-Fulfilling Liquidity Crises"
For example, Chapter 2 discusses uses of the FED model and charges of its lack of evidence without directly defining it.
According to the FED model, the Treasury bond yields and the yield on earnings and dividends on stocks are either equal or highly correlated.
I keep telling the store manager to buy the clip fed model as the outer tubes bulge at the seam when people attempt to load too many cartridges, causing the inner tube assembly to go flying off, sometimes into lakes, rivers or saltwater or mud, sand, gravel.
The so-called Fed model can be used to estimate the risk premium, i.
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 (which compares interest rates to estimated earnings) suggests the stock market is undervalued, and so does Alcosta's own portfolio, which has a median PEG (PE/Growth) ratio of less than 1," Ormsby said.
The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium.