Fed model

A model, theorized to be used by the Federal Reserve, for determining whether or not the stock market is properly valued. It is based upon the difference between the earnings yield (E/P) of a stock index and the yield on the 10 year treasury bond. It is not really clear that this model is in fact used by the Federal Reserve but the idea was suggested in a July 1997 Federal Reserve report to congress. Ed Yardeni, a securities analyst from Prudential, popularized the concept.