US Financial Conditions Index Falls to -1.75, Lowest in 2.5 Years
The US Financial Conditions Index has dropped to -1.75, the lowest level in at least two and a half years, driven by equity gains and tighter credit spreads. Conditions have eased 0.80 points since March 2025 despite the market pricing in roughly 20 basis points of Fed rate hikes by December 2026.
The US Financial Conditions Index has declined to -1.75, marking its lowest reading in at least 2.5 years. According to data from The Kobeissi Letter, financial conditions have eased by 0.80 points since March 2025, primarily driven by rising equity markets and tighter credit spreads. For context, the index was near 0 in March 2025.
This easing comes despite a significant shift in market expectations: the market now prices in approximately 20 basis points of Federal Reserve rate hikes by the December 2026 Federal Open Market Committee meeting. That is a complete reversal from the 40 basis points of rate cuts that were anticipated before the Iran conflict.
Notably, financial conditions are loosening even as inflation risks continue to build, creating a complex backdrop for policymakers.
Source: The Kobeissi Letter