Fed Tightening During Market Weakness

For the past 35 years, it’s pretty rare for the Fed to tighten when the US stock market is as weak as it has been lately (S&P 500 is down -13% from its highest close 3 months ago).

“How rare”, you ask?

That’s what this chart shows. The shaded areas indicate periods where the market was down more than -13% off its high AND the most recent move by the Fed was a rate hike.

The Fed was in tightening mode in January 2016 (they raised rates in December 2015) and back in 2010 (when the first round of quantitative easing ended, which corresponded with the first Flash Crash).

Then you have to go back to 2000 and 2003 during the bursting of the dot-com bubble.

Then you have to go all the way back to 1987 when the Fed remained in rate-hike mode even after the Black Monday crash that October.

Prior to that period, however, it wasn’t so rare! Particularly in the 1970s when the Fed either raised rates or failed to lower rates during the severe bear markets during that decade.


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