Wall Street Eases U.S. Financial Conditions to 1996 Levels, Complicating Fed at 3.5%-3.75%
Updated
Updated · Yahoo Finance · Aug 15
Wall Street Eases U.S. Financial Conditions to 1996 Levels, Complicating Fed at 3.5%-3.75%
3 articles · Updated · Yahoo Finance · Aug 15
Summary
A Bloomberg gauge of U.S. financial conditions climbed to its easiest level since 1996 on Thursday, marking a sharp reversal from late July and signaling unusually loose Wall Street conditions.
Since the Fed's July 29 meeting, the S&P 500 has jumped nearly 7%, the VIX has fallen six points to yearly lows, and junk-bond borrowing costs have dropped even as the policy rate stayed at 3.5%-3.75%.
That easing is being driven by stronger risk appetite rather than cheaper risk-free money: the 10-year Treasury yield remains higher than at Kevin Warsh's first June 17 meeting.
Speculative trades are already benefiting, with ARK Innovation, IPOs and other high-risk corners rebounding, potentially adding fuel to an economy the Fed is still trying to cool.
For Warsh, the shift weakens the market tightening he cited two weeks ago and raises the chance the Fed may need to do more itself if stocks keep climbing and borrowing costs keep falling.