Taps Coogan – August 28th, 2021

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The following chart, from Liz Ann Sonders, highlights the zeitgeist of this period in financial markets. According to the Goldman Financial Conditions Index, we are experiencing the ‘easiest’ financial conditions on record, and they just keep getting easier.

Goldman’s index is the weighted average of short and long-term rates, the value of the dollar, credit spreads, and equity prices.

This extreme in financial ‘looseness’ comes at a time when we have the most job openings on record, inflation well over the Fed’s target for six months running, and GDP that is likely to end this year at the fastest annual growth rate in decades.

As we find ourselves saying with more and more charts, just getting back to pre-Covid levels on this chart would represent a financial tightening equivalent to a recession.

If you want to know what a monetary policy failure looks like, this is it.

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