Economics: Easing FCIs: a new conundrum?
Financial conditions indices have eased despite monetary tightening
Financial conditions appear to have eased in recent months, with some FCIs suggesting conditions are now easier than when the Fed started hiking rates. What does this imply about economic prospects? And will central banks need to lean against this easing?
Other measures suggest tighter monetary policy is working
Alternative measures of monetary, financial and credit conditions are sending a more cautious signal than FCIs right now. Many of these have leading relationships with the cycle. They continue to indicate that a further slowdown and recession are likely.
We continue to think that central banks are close to their terminal rates
If this is right, central banks will have little need to respond; FCIs should tighten once that slowdown becomes more evident. This still leaves us inclined to think that the policy rate will peak at 5% in the US, 3¼% in the eurozone, and 4¼% in the UK.