Tag: S&P 500

Until the end of last month and as outlined in June’s letter, calm and confidence was not only reflected in the equity markets but in numerous gauges related to U.S financial conditions and the shadow banking system. In this context a recent report from the Federal Reserve Bank of Atlanta attempts to measure the shadow Federal Funds Rate (“SFFR’) based on a model that was developed from Wu and Xia. Since December 2008 the Federal Funds Rate has been in the 0 to ¼ percent range targeted by the Federal Open Market Committee. This 50 page research report is used to summarize the macroeconomic effect of unconventional monetary policy at the zero lower bound. In the bank’s own words; “The result gives us a tool for measuring the effect on monetary policy at zero lower bounds”. Based on their analysis the SFFR level had roughly flat lined for two years ending July 2013 in the range of -1.25 to -1.5%, but in the past year declined sharply and in the past two months has hovered in the vicinity of -3.00%. The extremely low levels on the SFFR had a beneficial impact on several other Federal Reserve reports that reflect US financial health. Composites of these measures from government reports were detailed month as they were at the most favorable levels in 20 years. The liquidity spigot is not just domestically evident, the shadow banking system in Europe has surged as well.