The chart above shows the weekly St. Louis Fed Financial Stress Index, which is calculated from 18 weekly data series that include seven interest rates, six yield spreads, and five other financial variables. For more than a year starting in October 2011 when the index was at 1.0, the Financial Stress Index has been steadily trending downward (lower values indicate less stress). For the most recent week ending January 25, the Financial Stress Index fell to -0.536, which is the lowest level since early August 2007, before the Great Recession and financial crisis.
Based on this weekly statistical measure of financial market stress from the St. Louis Federal Reserve, the stress in the U.S. financial system has returned to the pre-recessionary, pre-financial crisis levels that prevailed in 2007. Past recessionary periods in the U.S. have been associated with rising index values for the Financial Stress Index, and we’re now seeing the opposite – the index has been trending downward for more than a year, and is at the lowest stress levels in more than five years. The stress in the U.S. financial system (at -0.535) is now below the historical average of 0.00 for the St. Louis Fed index back to 1994.