Cleveland Fed researchers on consumer credit weakness; financial stress; low inflation (video)

Low inflation: Too much of a good thing?

Why would very low inflation not be good news? Find the answer in this two-minute video from the Federal Reserve Bank of Cleveland, a companion piece to our recent essay, Why Inflation Is Very Low and Why It Matters.

Consumer credit market still weak outside of select sectors and for borrowers at riskier end of the credit spectrum, say Cleveland Fed researchers

By most accounts, household deleveraging appears to be over. Auto and student loans have been strong throughout the recovery, and mortgage lending is beginning to turn the corner. But using data adjusted for inflation, consumer credit appears weaker, say Federal Reserve Bank of Cleveland researchers O. Emre Ergungor and Daniel Kolliner. For example, while nominal mortgage balances have reached their 2007 level and are increasing, in real terms mortgages are flat at their 2005 level, and auto loan balances are below their pre-crisis peak.

Looking at the mortgage market, the researchers say those with strong credit scores appear to be benefiting the most from current low borrowing costs. However, everyone appears to be benefiting from the auto loan boom.

Read Households Ease Up on Adding New Debt.

Cleveland Financial Stress Index (CFSI) trended down in second quarter of 2014, says Cleveland Fed researcher

The Cleveland Financial Stress Index (CFSI) began the second quarter in Grade 2 or a “normal stress” period, then trended downward into Grade 1 or a “low  stress” period, according to Federal Reserve Bank of Cleveland economic analyst Amanda Janosko.

As of June 27, the index stood at -0.860, above the historic low it reached in January 2014.

Janosko says the increased contributions of the equity and securitization markets to overall financial stress were responsible for the index remaining in Grade 2 for much of the quarter.  The index moved back into Grade 1 as the securitization and equity contributions waned and stock prices reached historical highs in June.  The CFSI’s credit, funding, real estate, and foreign exchange markets remained relatively stable over the quarter.

The CFSI and its component-level data are updated daily. More info and interactive charts can be found here.

Read Tracking Recent Levels of Financial Stress.