Recalibrated financial stress index (St Louis Fed) and Chicago Fed financial conditions index paint ugly picture

The markets are at 2008 levels of stress and rising as measured by the St Louis Fed stress index. The Chicago Fed Adjusted Financial Conditions index also is at its highest levels since the last recession. These indices use timely information but are generated weekly, so the numbers calculated are for March 20th. We view these indices as good indicators of whether Fed policies are working.

The St Louis Fed series uses 18 series, 7 interest rates, 6 rate spreads, and 5 other financial series. The series has been recalibrated in the last two weeks with the old series discontinued. The new series is rougher and shows more extremes because it accounts for stock and rate changes instead of just levels. See the St. Louis Fed for more information on the changes and the construction of the index. 

The Chicago Fed Financial Conditions index (ANFCI) is not supposed to be a stress indicator but tells us whether financial conditions are tighter (positive) or looser (negative). The adjusted index focuses on the factors that are uncorrelated with economic conditions to provide a closer measure of the financial environment after accounting for economic conditions.

We don't expect these indices to fall in the near future, but any decline will tell us whether the Fed credit lending and monetary activities are having an impact on markets.