Short-rate velocity regimes before tightening

A waiting period after easing

The 2002 case is framed as a post-easing waiting period after a policy-rate campaign that began in January 2001 and intensified after September 2001. Attention sat on the first tightening signal from sub-2 percent funds.

A discussed tightening path was to reclaim post-shock cuts toward about 3.5 percent policy rates, with a 25-basis-point-per-quarter cadence into late 2003 only if strong growth persisted.

Classify short-rate velocity first

A rate-of-change-regime is a weeks-to-months market label based on how fast short-term yields are changing year over year, not on the headline yield level.

A long-only index rule classifies the equity regime as constructive only when the year-over-year change in three-month bill yields is 6 percent or less. The rule uses short-rate velocity rather than the nominal yield.

The bill-velocity rule can reclassify the regime as constructive even if short rates rise, provided the year-over-year change stays under 6 percent. The summer 2002 example used the prior summer’s 3.4 percent to 3.7 percent bill yields as the comparison band.

Then apply the policy-rate overlay

A policy-rate-overlay is a fundamental filter that maps central-bank easing or tightening steps onto whether an equity stance is treated as regime-compatible. The overlay treats government price or credit intervention as an artificial push that misallocates resources and is typically applied early and withdrawn late.

A prime-rate-threshold uses an 8 percent split. Below 8 percent, the first cut or the second hike or a full 1 percent rise flips the stance. At or above 8 percent, the second cut or a full 1 percent drop or the first hike does.

The tightening handoff as portfolio context

A tightening-handoff is the interval after an easing campaign when the first hike is anticipated and cross-market conditions are reclassified. Sector history for the first 3, 6, and 12 months after tightening begins is used to mark that window as an unfavorable cross-industry regime.

Editorial: that window is context for a single index stance. It is not a headline trigger that stands in for the two filters above.

What the 2001 classifications showed

In 2001 the bill-velocity rule issued a long as easing began in January and closed it within a month. That sequence shows that an easing headline and a durable equity regime are not the same classification.

The prime-rate overlay flipped long about a month after easing started and, roughly 18 months later, still lacked the equity response a loose-money overlay usually assumes.