Today’s GI regime is Growth Acceleration × Inflation Reacceleration.
Financial conditions are tight, the yield curve is flat, and credit conditions show spread compression.
- The Growth Acceleration × Inflation Reacceleration regime has historically tended to indicate robust economic activity with rising price pressures.
- Financial conditions are moving somewhat tighter compared to the past, with a slight increase in the financial conditions score.
- The yield curve remains flat, with a slight steepening observed from the past week.
- Credit conditions show spread compression, with a high-yield spread in the lower 5th percentile, indicating relatively favorable credit conditions.
- The most notable shift is the slight steepening of the yield curve, suggesting a marginal change in market expectations.
Growth × Inflation (GI)
The current regime of Growth Acceleration × Inflation Reacceleration suggests a period where economic growth is picking up pace alongside rising inflationary pressures. The year-over-year growth in industrial production stands at 1.75%, with a three-month change indicating further acceleration. Inflation, as measured by the CPI, is at 3.03% year-over-year, with a slight increase over the past three months. This regime remains unchanged from the previous snapshot, indicating a consistent economic environment.
Financial Conditions (F)
Financial conditions are currently labeled as tight, reflecting a more restrictive environment compared to historical norms over the past decade. The federal funds rate is at 4.09%, and the two-year yield is at 3.49%, both indicating a relatively high-interest rate environment. The financial conditions score has moved slightly tighter compared to the past, suggesting a marginal increase in financial market constraints.
Yield Curve (R)
The yield curve is currently flat, with a spread of 0.24 percentage points between the 10-year and 3-month yields. This flatness suggests a balance between short-term and long-term interest rate expectations. Compared to the past, the yield curve has steepened slightly, moving from a spread of 0.18 percentage points. This change may reflect shifting market expectations regarding future economic conditions, although it remains within a flat configuration.
Credit (C)
Credit conditions are characterized by spread compression, with the high-yield spread at 2.89%. The z-score of -1.05 indicates that the spread is significantly below the long-run average, placing it in the 5th percentile of the past decade. This suggests that credit markets are relatively favorable, with lower risk premiums demanded by investors. Compared to the past, there has been further compression, as indicated by the lower high-yield spread and z-score.
Uncertainty and How to Verify Going Forward
This report outlines conditional tendencies based on current data, not forecasts. Key metrics to track include the GI label and its core values, the financial-conditions score, the yield-curve spread, and the high-yield spread level and percentile. Monitoring these indicators over the coming months will provide insights into potential shifts in economic and financial conditions. Readers should remain vigilant and consider these metrics as part of a broader analysis, without relying solely on this report for investment decisions.
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