Financial Stress Remains Muted

The Kansas City Federal Reserve issues a monthly report on their index of the US Financial Stress.  The most recent one issued on August 8, 2012 had an index level of -.13 essentially unchanged from the June level of -.11.  Negative levels indicate that there is less stress than a normal level of 0 and a positive number would indicate more stress.

For example, during the “Great Recession” of 2008-09, the level peaked out at about 6 (which is 6 Standard Deviations, not six times)  Other than this time period, the index toggled between +1 and -1 from 1990-2007 and from 2010 to now.  The least amount of stress occurred during 1991 to 1998 and from 2004-2006.

11 components make up the index.  8 of them are based upon yield spreads and 3 are based upon behavior of asset prices.  The changes of each component for the month of July ranged from -.06 to .07.

Although not directly to farming, these indexes provide guidance on where the financial markets are headed which will affect lending and interest rates.

Paul Neiffer