Fed Model

AAA

DEFINITION of 'Fed Model'

A model thought to be used by the Federal Reserve that hypothesizes a relationship between long-term Treasury notes and the market return of equities. Many security analysts use this model in valuing equities.

INVESTOPEDIA EXPLAINS 'Fed Model'

The Fed doesn't endorse this tool. In fact, it was named the "Fed model" by Prudential Securities strategist Ed Yardeni.

This model suggests that returns on 10-year Treasury notes should be similar to the S&P 500 earnings yield. Differences in these returns identify an overpriced or underpriced securities market.

RELATED TERMS
  1. Sweet Spot

    The point at which an indicator or policy provides the optimal ...
  2. Tight Monetary Policy

    A course of action undertaken by the Federal Reserve to constrict ...
  3. Loose Credit

    The practice of making credit easy to come by, either through ...
  4. Earnings Yield

    The earnings per share for the most recent 12-month period divided ...
  5. Alan Greenspan

    The former chairman of the Board of Governors of the Federal ...
  6. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
Related Articles
  1. The Federal Reserve
    Economics

    The Federal Reserve

  2. Forces Behind Interest Rates
    Economics

    Forces Behind Interest Rates

  3. Breaking Down The Fed Model
    Bonds & Fixed Income

    Breaking Down The Fed Model

  4. Translating
    Economics

    Translating "Fed Speak" Into Plain English

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center