Financial Stress Index Returns to Pre-Recession Levels

by: Mark J. Perry
The St. Louis Federal Reserve updated its Financial Stress Index on Thursday for the week ending February 11, see chart above (data here). This index measure of the amount of financial stress affecting the markets (explanation here) based on 18 individual variables including seven different interest rates, six interest rate yield spreads, and five measures of market volatility. According to the St. Louis Fed, each of the 18 component variables in the Financial Stress Index captures some aspect of financial stress in the markets, and the Financial Stress Index incorporates the 18 variables into a single, composite index measure that tracks the amount of overall financial stress in the markets.
The chart above shows that the St. Louis Fed Financial Stress Index has now returned to the pre-recession, pre-financial crisis levels that prevailed back in the fall of 2007. The reading for last week of -0.022 was only the second time since the recession started in December 2007 that the index was below zero (it was -0.003 in April 2010), and the lowest index value since early November 2007.