The St. Louis Fed’s Financial Stress Index skyrocketed in the week ended Friday, March 13. The index jumped 0.872 to -0.070 in the week, the largest week-over-week increase since 1.174 in the October 10, 2008 week and the highest reading since 0.027 in the October 7, 2011 week when a cascade of events in prior months threatened the young and tentative expansion after the end of the recession. That the stress wasn’t worse was probably due to the Fed’s decision to pour liquidity into markets to relieve strains. Of course the numbers do not reflect the Fed’s announcements of fresh infusions of liquidity earlier this week or the revival of the PDCF and CPFF or the new MMLF. Hopefully these and actions on the part of other major central banks will pull the index lower gain next week. However, I will note that the index is not yet at the levels that were seen when the credit crunch that began in 2007 was first unmistakable or at readings evident during the financial crisis and Great Recession. Whether this will be avoided remains to be seen.
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