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.
- Credit conditions show spread compression, with a lower z-score and percentile compared to the past.
- The most notable shift is the slight steepening of the yield curve, indicating potential changes in market expectations.
Growth × Inflation (GI)
The current regime of Growth Acceleration × Inflation Reacceleration suggests a period where economic growth is picking up alongside increasing 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 past snapshot, indicating a consistent economic environment.
Financial Conditions (F)
Financial conditions are currently labeled as tight, which suggests that borrowing costs and financial market conditions are more restrictive than usual. The federal funds rate is at 4.09%, and the two-year yield is at 3.56%, both indicating a relatively high-interest rate environment. Compared to the past, the financial conditions score has moved slightly tighter, reflecting a marginal increase in the restrictiveness of financial conditions.
Yield Curve (R)
The yield curve is currently flat, with a spread of 0.32 percentage points between the 10-year and 3-month yields. This flatness suggests that the market is uncertain about future economic growth and inflation. Compared to the past, the yield curve has steepened slightly, moving from a spread of 0.20 percentage points. This change may reflect shifting market expectations about future interest rates and economic conditions.
Credit (C)
Credit conditions are characterized by spread compression, with a high-yield spread level of 2.85%. The z-score of -1.08 indicates that spreads are tighter than the long-run average, and the percentile of 4.35% places current conditions among the tightest observed over the past decade. Compared to the past, there has been further compression, as indicated by a lower z-score and percentile.
Uncertainty and How to Verify Going Forward
This report expresses conditional tendencies based on current data, not forecasts. Key metrics to track include the GI label and 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 help assess any shifts in economic conditions. Readers should note that this analysis does not constitute investment advice, and they should consider their own circumstances when making financial decisions.
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