Amid rising confidence that the FOMC will cut short-term rates at the July 30-31 meeting, signs of rising strains in financial markets retreated in the St. Louis Fed’s Financial Stress Index. The index slipped to -1.246 in the June 21 week, down from -1.217 in the prior week and virtually the same as the -1.247 in the May 17 week when markets were only just beginning to anticipate a rate cut after the April 30-May 1 FOMC meeting.
Evidence of any substantive stress in financial markets remains absent, but conditions could be less optimistic in coming weeks unless the aggressive tone of exchanges between the US and Iran cools and the bilateral meetings at the G20 leaders’ summit result in trade agreements that reduce the threat of punitive tariffs, which in turn would help reduce uncertainty and risks to the outlook.
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