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Bridge over ocean
1 January 2005 Financial Analysts Journal Volume 61, Issue 1

Is Fed Policy Still Relevant for Investors?

  1. C. Mitchell Conover
  2. Gerald R. Jensen, CFA
  3. Robert R. Johnson, CFA
  4. Jeffrey M. Mercer

Thirty-eight years of U.S. data indicate that U.S. monetary policy continues to have a strong relationship with security returns. U.S. stock returns are consistently higher and less volatile when the Federal Reserve is following an expansive monetary policy. Furthermore, the monetary policy–related return patterns of companies considered to be most sensitive to changes in monetary conditions are much more pronounced than average patterns. Finally, the influence of U.S. monetary policy is global; international indexes have return patterns similar to those for the U.S. market. Overall, the evidence suggests that investment professionals should continue to consider monetary conditions when performing fundamental analysis of U.S. and international securities.

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