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On the radar: St. Louis Fed’s Financial Stress Index highest since February

The St. Louis Fed’s Financial Stress Index rose to -1.191 in the May 31 week, its highest since -1.186 in the February 22 week when financial markets were starting to recover from the strains associated with the plunge in the stock market in late 2018 and impacts from the partial federal government shutdown that ended late in January.

Increased worries about an economic downturn related to uncertain trade policy, a handful of brief inversions of the 2/10-year yield curve, and other geopolitical risks have added to markets’ perceptions of increased risks and stresses. Nonetheless, signs of stress are not as pronounced as they were late in 2018 and are quite mild in the historical context. Greater confidence that the Federal Reserve could cut short-term rates may ease some of the stress in the coming week.

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