The partial shutdown of the federal government and the prospect of it being a prolonged one added to the strains in financial markets in recent weeks.
The St. Louis Fed’s Financial Stress Index – which is published weekly – rose to -0.508 in the December 28 week, its highest since -0.455 in the February 19, 2016 week. While the reading could hardly be said to reflect real stress across the index’s 18 variables, it has now been up for four weeks in a row. There’s still a distance to travel before it reaches the zero-mark that would signal the emergence of notable strains. Nonetheless, a continued upward crawl could be a warning sign of some more fundamental deterioration in financial conditions. We may well get a hint of that in the minutes of the December 19-20 FOMC meeting when they are published on January 9 at 14:00 ET. The meeting was held before some of the worst of the stock market data came to pass, but there should be a sense that the FOMC was vigilant regarding the performance of the equity market and the yield curve for US Treasurys.
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