As market watchers listen to the news from the two-day Federal Open Market Committee meeting and the subsequent press conference by Federal Reserve Chairman Ben Bernanke, take a moment to consider just how heavily subsidized certain markets have become. Did the Fed help us avert a real Great Depression?
In order to understand how much the Fed has goosed markets, the staff at Wall St. Cheat Sheet decided to put together a few charts . . . because seeing is believing.
Here’s the five economic measures the Fed has buoyed:
S&P’s 500 :
The S&P 500 index is a gauge of the large cap U.S. equities market. It includes the 500 leading companies from the U.S. economy’s leading industries that are publicly-traded companies from the two largest stock exchanges: the New York Stock Exchange and the NASDAQ. These two exchanges represent 75 percent of U.S. equities.
This commonly-followed index is considered a bellwether of the U.S. economy.
Fed Action: The S&P 500 crashed to 666 (scary, huh?) before the Fed announced a bailout. This led to a record-setting liquidity rally.
Total Consumer Credit Outstanding:
This monthly data report includes short and intermediate credit from businesses that either finance the personal consumption of commodities and services or refinance debts. Consumer credit is defined as either installment or non-installment credit.
Fed Action: Consumer credit was moving toward a major collapse until the Fed opened its discount window and enabled financial services institutions to keep credit flowing in the system.
30-Year Conventional Mortgage Rate:
This represents the contract interest rates on fixed-rate first mortgages. The interest rate on the mortgage is a fixed one during the loan’s life and it comes in a little higher than a 30-year Treasury Bond when the mortgage is issued. Its monthly payments equal the principal’s interest and a portion of the principal. As the principal is paid off, monthly interest payment on the remaining principal will still start to decline.
Fed Action: The Fed purchased mortgage-backed securities while cutting mortgage rates to historically low levels.
S&P Case-Schiller 20-City Home Price Index:
A leading measure of the US residential housing market, this index tracks changes in the residential real estate values nationally and in 20 metropolitan regions. Data is collected from either the sales of single-family homes or condos on a monthly basis.
Fed Action: Home prices were diving uncontrollably. The Federal Reserve intervened and bought mortgage-backed securities while cutting mortgage rates to historically low levels.
Producer Price Index:
This monthly index measures the average change in selling prices received by domestic producers of goods and services. This change represents the seller’s perspective and it encompasses industry, commodity and stage of processing-based companies.
Fed Action: Rising commodities and food prices have been jolted by the Fed’s injection of liquidity and quantitative easing.
Demand Deposits at Commercial Banks:
This represents total demand deposits from commercial banks and foreign-related institutions not from the U.S. government, U.S. and foreign depository institutions, and foreign official institutions. Demand deposits are held by foreign banks and foreign official institutions and they are estimated using data reported on the Call Reports. The Federal Reserve has a weekly float obtained from the consolidated balance sheet of the Federal Reserve Banks.
Fed Action: With banks facing a major de-leveraging event, the Fed again injected liquidity into the system through cheap money for banks.
[Editor's note: the above is a cross post that originally appeared on Wall St. Cheat Sheet.]