Economic stress index is falling

The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress.

As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants

Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.

The St. Louis Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).

The latest results of the STLFSI indicates that the level of financial stress is continuing its trend down from the epic levels seen during the fall of 2008 but remains elevated with respect to typical levels.

At a value of 0.31 the current level of financial stress is roughly equivalent to mid-2003 following the Enron/WorldCom debacle and remains nearly as elevated as period surrounding the 1998 Russian debt crisis and Long Term Capital Management.

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