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Stock-and-Bond Rout Turns Financial Clock Back to Christmas 2018

  • Financial conditions tighten to late 2018 levels amid selloff
  • Fed would rather market do the tightening itself: Pearkes

Rising interest rates, plummeting stocks and the surging dollar have tightened reins on the economy to a point where the Federal Reserve has previously cried uncle. No such capitulation should be expected this time.

Financial conditions, a multi-input measure of nervousness across equity and fixed-income markets, have constricted to roughly the same levels they reached at the height of the central bank’s last tightening campaign, at Christmas 2018, a Bloomberg measure shows. It was then, with the S&P 500 just points away from a bear market, that Fed Chair Jerome Powell decided enough was enough and stopped hiking rates.