This summer, the U.S. economy enjoyed the easiest financial conditions of the post-crisis era. Those days are probably over. Financial stress is rising, according to gauges maintained by the Federal Reserve Banks of Chicago and St. Louis, as well as measures compiled by Goldman Sachs Group Inc., Bank of America Merrill Lynch and Bloomberg.
The deterioration reflects tightening credit conditions for companies, higher stock-market volatility and a stronger dollar. Put those elements together, and the boost to the economy provided by financial markets is fading.
“We’re seeing financial conditions that are broadly supportive of growth, but pretty meaningfully less so than they were,” said Matthew Luzzetti, a New York-based economist at Deutsche Bank Securities Inc. With the Fed’s program of bond purchases winding down this month, the market’s focus shifting toward the prospect of Fed interest-rate increases and the dollar poised to continue rising, “all of those things probably point toward some tightening” of conditions going forward.
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