The Fisher Effect is a well known economic rule whereby Fed Funds = inflation + real GDP. The current Fed Funds rate of 1 3/4% induces a 1 3/4% GDP growth rate. The spot rate for NGDP can then be used as the starting point to derive a term structure of NGDP in the future.

Either US equity drops about 30% to 40% in value to be in synch with current US Treasury rates and term structure, or US Treasury rates rise about 2% in short maturities and 3 1/2% in long maturities which will be a drop of about 50% in price for long US Treasury bonds. This is based on a 'Fisher" analysis which has been appropriate for the 100 years plus prior to 2015.

The well observed monthly household and established firms - last Dec 6th well noted 266,000 increase - is survey based and easily manipulated. The less watched state unemployment insurance claims data is less watched though is 100% accurate being a census. Continuing claims - or also called "insured unemployment (CCSA on FRED data base) - is best way to monitor a slowdown and initial claims ( ICSA) to monitor when a slowdown ends and growth begins. This morning, Jan 9 2019, data indicates a slowdown in th US economy has commenced though not certain if it is a recession.

If the work of Irving Fisher (the "Fisher Effect") is used to bridge Federal Reserve monetary policy, the resulting term structure and levels of US Treasurys to a forward valuation of US GDP levels, and subsequently US equity markets - US equity values are greatly overpriced and will trade down substantially.

The recent (Dec 6 2019) headline Non Farm Payrolls data of 266,000 was misreported and likely misrepresented by the BLS. There are no other employment data that affirms the 266,000. In fact the 100% accurate state unemployment insurance claims data indicates the economy has been slowing since Dec 2018.

The current Federal Reserve policy and resulting levels in Fed Funds and US Treasurys will not maintain the current relationship with US equity markets, in this report represented by the SP500 stock market index.

A tenet in macro economics is the long US Treasury yield reflects or is equivalent (over time) to the US GDP annual growth. This is based on Fisher’s theory of interest rates with long duration risk free based upon the expected Fed Funds over the tenor/time/maturity. Keynes also states that long duration US Treasury rates do synch with the US GDP growth via the liquidity preference, where long US duration rates are at the level to induce savers to leave the Zero duration of cash and extend out taking duration risk. Right now the savings rate is climbing and at a high level as US Treasury rates, though higher than recent century lows, are unusually low.

Claudia Sahm defined a simple signal for when a recession commences. It is when the rolling 3 month average of the unemployment rate exceeds the last years minimum of unemployment rate by 5%. https://fred.stlouisfed.org/series/SAHMREALTIME However the unemployment rate is using surveys with large margin of errors and can be manioulated. Using the same logic but using census insured unemployment level (continuing claims or CCSA on FRED) a signal is found at 8% of last 3 months divided by the lowest value over the preceding year. While the 8% sugnal has not occurred, clearly pressure is building raising unemployment in establishment businesses - those businesses which have the unemployment insurance benefits available.

The low rates to neg rates of the key central banks is setting out to disrupt the populist Westphalian federal movements like Trump and BREXIT. They will likely succeed with key equity markets dropping. The US equity market, if rates do not resume normalization, will drop 20% to 30%. And damned if you dont now as normalization to where US long Treasury rates align with a US potential GDP growth of 4% means they drop about 60% in value. This will cause havoc with the US banking, pension and insurance assets.

Despite the strong US economy post Trump gaining POTUS with record low unemployment both in general and for minorities - the Fed inexplicably ceased Fed Funds "normalization" in Dec 2018 and then has eased. This is to support an internationalist economic agenda or (perhaps and) to frustrate Trump's pro US economic plans and thereby denying him a second term.

The forward implied GDP, out to 7 years, cannot sustain current SP500 levels. Either US Treasurys must increase about 2% to 3% or SP500 will drop about 20% or more in value. This will likely take place by summer 2020 before the November 2020 election.

The Federal Reserve motivated by either honestly arrived at but mistaken thesis - or a decided attack against President Trump so as to deny him a 2nd term as Fed policy crashes the US stock market. In the current environment, ever lower Fed Funds rates and additional QE is not stimulative but is a de facto tightening. Will lock US GDP to a stagnant 1% to 1 1/2% growth. This is of course well below the 4% to 5% growth President Trump requires for US prosperity.

The Federal Reserve has evoked a permanent chronic stagnation growth regime in US GDP (economic ) growth.invoked by a Neo Fisher process. While this might not be intended by the Federal Reserve, it is likely on purpose as the resulting plunge in SP500 from this regime will deny President Trump a second term. There are actions President Trump can take to counter, but time is limited.

By evoking Neo Fisherianism monetary economics, the Federal Reserve has moved US economy into a Japanese like (since 1992) "lost decade" of long running stagnant growth. This state will not support current SP500 levels. Updated for Oct 10 2019.

Unless President Trump offsets this attack by the Federal Reserve which is destroying forward GDP, the SP500 (stock market) will drop up to 25% and deny him reelection 2020. There is an offset but time is running out .

The forward GDP, based upon derived 7 Year term structure of GDP, will not support SP500 levels above 2500 and if Fed continues to drop Fed Funds likely see SP500 approaching 2000 to 2200 - current SP500 is now 2960.

Difficult to see how the SP500 levels can be maintained with current Fed dropping of Fed Funds. A "Neo Fisherianism" regime has likely commenced. SP500 likely to plunge.

While counter intuitive it is not difficult to show lowering Fed Funds from current levels or even not "normalizing" Fed Funds towards 3% to 4%, will result in stagnant US GDP under 2% and force SP500 to drop 20%. Currently at around 3000, the SP500 will see levels below 2500.

The aggressive actions taken by the Federal Reserve to impose of Neo Fisherianism "sink hole" (a stagnation of the US GDP similar to the Japanese economy since 1992 - a "Lost Decade" status) has eliminated support to the SP500. If actions are not taken by the Trump administration to counter this Federal Reserve attack, SP500 likely headed to sub 2200 levels.