Quick Bite | Global financial stress is reducing

Below is the Bank of America (BoA) Global Financial Stress Indicator. This is a measure of risk, hedging demand, and investor flows in the global financial system as calculated by BoA Merrill Lynch. Levels greater than 0 (in the green) indicate less financial stress than normal.

The chart shows that the Index has just exceeded its April 2021 extreme, that is, showing the least amount of financial stress since the commencement of the pandemic in February 2020.

Source: Bank of America 

What is surprising is that the Index is showing so little stress at a time when the Federal Reserve (Fed) has official rates at a relatively high 5.5%. If, as many believe, the Fed has “all but achieved its dual mandate of a full-employment economy and low inflation”, then it appears that the current Fed Funds Rate is not really that stressful for the US economy. Perhaps it follows that the Fed is probably not in any great rush to start reducing rates.

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