Tracking Recent Levels of Financial Stress - January 2015
Advisory: This article is based in whole or in part on the CFSI (Cleveland Financial Stress Indicator), an indicator that was discontinued by the Federal Reserve Bank of Cleveland in 2016 due to the discovery of errors in the indicator’s construction. These errors overestimated stress in the real estate and securitization markets. As a result, readers should be cautious and interpret any analysis based on CFSI data with those errors in mind.
During most of the fourth quarter of 2014, the Cleveland Financial Stress Index (CFSI) remained in Grade 2 (a historically normal stress range). From November 6 to November 15 and again from December 3 to December 8, the CFSI dipped into Grade 1 (historically low stress range). However, since the beginning of 2015, the daily CFSI reading has consistently trended up, moving into Grade 3 on January 19, 2015. As of February 2, the index remains in Grade 3 and stands at 0.6874, almost midway between the historical high of December 2008 (2.544 standard deviations below) and the historical low of January 2014 (2.794 standard deviations above). The CFSI is elevated 1.321 standard deviations by comparison with the stress index one year ago.
Since October 2014, stress in the credit, funding, real estate, and securitization markets increased gradually. Meanwhile, stress in the foreign exchange market, despite a slight rise in October, returned to the relatively low levels reached in this market during 2014:Q3. In the equity market, stress rose moderately from its historically low level, as stock prices fell in October. Stress waned in November and December, as stock prices increased. The January 2015 stock price declines corresponded to growing equity market stress.
The Cleveland Financial Stress Index and all of its accompanying data are posted to the Federal Reserve Bank of Cleveland’s website at 3 p.m. daily. We also provide a brief overview of the index construction, stress components, and a comparison to other stress measures. The CFSI and its components are also available on FRED (Federal Reserve Economic Data), a service of the Federal Reserve Bank of St. Louis.