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On the radar: St. Louis Fed’s Financial Stress Index puts any sign of strain at a distance

The St. Louis Fed’s Financial Stress Index fell to -1.351 in the week ended December 13, down from the -1.332 in the prior week and not far above the near-term bottom of -1.379 in the November 29 week. Fed policymakers signaled an extended pause on December 11 and markets reacted favorably. The economic data broadly agrees with the Fed decision, so there is no conflict to resolve there. Treasurys showed that things are looking more normal there with more daylight between short- and long-term yields. As a result, the recession signal of an inversion in the yield curve retreated further. Fed announcements of term lending over the end-of-quarter and end-of-year have more than addressed short-term liquidity needs.

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