Regime change continues to be the foundation of our analytical framework for the post-pandemic economy.
Secular stagnation that for years featured low inflation, low interest rates and plentiful capital has been replaced by competition for capital, higher inflation and higher interest rates.
During the era of easy money, financial conditions took a back seat to rising risk appetite, significant leverage and large multiples.
Now, as that era fades and scarce capital demands higher rates, it merits a closer focus on financial conditions as an indicator of where the economy is going and the direction of monetary policy.
Despite the recent selloff in bonds and equities, the RSM US Financial Conditions Index implies that financial conditions remain supportive of growth and that the economy does not need any further rate reductions from the Federal Reserve.
The index stands at 0.63 standard deviations above zero, suggesting lower risk and therefore greater accommodation than what would normally be expected in the financial markets.
Read RSM’s U.S. economic outlook for 2025 in the latest issue of The Real Economy.
Our index is the average of risk inherent in the bond market, equities and money markets. Positive values indicate less risk, while negative values indicate excessive risk and a higher cost of credit.
In the current economy, little is needed in the way of accommodation from the Federal Reserve or in fiscal spending.
