US financial conditions are easing
Despite the rate increases, US financial stress is easing again.
This chart shows a financial conditions index that we constructed at Macrobond. It applies a principal component analysis to several financial time series, including the policy rate, equity prices and volatility, the exchange rate and credit conditions.
The spike during the crisis of 2008 is obvious, as is the somewhat smaller shock during the early days of the pandemic. (The Federal Reserve’s monetary policy response was much more aggressive.)
The tightening that occurred throughout 2022 was a result of rising interest rates and falling asset prices. But the latter effect has now somewhat reversed, easing the tension.