Board of Governors of the Federal Reserve System

Figure 1. Federal Funds Rate v. Incidence of Financial Crises in EMEs

Figure 1 presents a single panel showing the U.S. Federal Funds rate and the number of financial crises in emerging market economies (EMEs) over time. Time is shown on the x axis and ranges from 1970 to 2020. The Federal Funds rate is plotted as a black line scaled to the left y axis, which ranges from 0 to 20. The incidence of EME crises is represented by green bars and scaled to the right y axis, which ranges from 0 to 30. Data for EME crises is only available through 2017. Periods when the FFR was rising are depicted by gray shading. The chart shows the FFR rising to a peak of nearly 20 percent in the early 1980s, after which it trended downward, albeit with fluctuations around that trend as the Federal Reserve tightened and loosened monetary policy. In recent years, the FFR has been mostly at zero, rising between 2015 and 2019 before falling back to zero in 2020. The sharp rise in the FFR in the early 1980s was followed by a period of elevated EME crises that lasted from the mid-1980s to the late 1990s. Since 2000, EME crises have been much less common, usually ranging between zero and 5 in any given year, though rising to 14 in 2014.

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Figure 2. Treasury Yields and Stock Prices around FOMC Meetings and Employment Reports

Figure 2 presents 4 distinct panels. The x-axis of each panel is the change in 10-year U.S. Treasury yields in a 1-hour window around FOMC meetings or employment reports and ranges from minus 15 basis points to plus 15 basis points. The y-axis of each panel is the change in the S&P 500 index (futures for employment reports) in a 1-hour window around FOMC meetings or employment reports and ranges from minus 2 percent to plus 2 percent. Panels a and c (the first column) present data from FOMC meetings and employment reports respectively that we classify as conveying growth news. We classify a meeting or jobs report as conveying growth news when changes in Treasury yields and changes in S&P 500 futures moving in the same direction, so the blue circles in panels a and c are restricted to the first and third quadrants of the graph. We also include regression lines that show a positive relationship, with slope close to 0.12 and 0.08 in panels a and c, respectively. Panels b and d (the second column) present data from FOMC meetings and employment reports respectively that we classify as conveying monetary news. We classify a meeting or jobs report as conveying monetary news when changes in Treasury yields and changes in S&P 500 futures move in opposite directions, so the red diamonds in panels b and d are restricted to the second and fourth quadrants. We also include regression lines that show a negative relationship, with slope close to -0.1 and -0.05 in panels b and d, respectively.

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Figure 3. Effect of 100 Basis Point Increases in 10−year U.S. Treasury Yield on EME Asset Prices

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