The St. Louis Fed’s Financial Stress Index, Version 2.0

Economists, banking regulators, policymakers, and financial market analysts use a variety of indicators to monitor financial market conditions. Many indicators are constructed from market-based prices, since information about the health of the economy, a bank, or a firm is often reflected in equity and debt markets. So market prices are forward-looking indicators of potential changes in economic and financial conditions.
The best known macroeconomic measures are interest rate spreads between so-called “risk-free” and “risky” securities. For example, the spread between long-term and short-term Treasury yields—often termed the yield curve—tends to be a reliable forecaster of future economic growth. (See McCracken, 2018, and Owyang and Shell, 2016.)
To help the public monitor financial market conditions on a weekly basis, the St. Louis Fed unveiled a financial market stress index (FSI) in 2010. (See Kliesen and Smith, 2010.) Similar to other FSIs, the St. Louis Fed’s (STLFSI) measures different types of financial market stress.

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