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 slightly tighter than last week, with a marginal increase in the financial conditions score.
- The yield curve remains flat, with a slight steepening observed compared to the previous week.
- Credit conditions show significant spread compression, with a z-score well below the long-term average and a low percentile rank.
- The most notable shift from the past is the slight steepening of the yield curve, indicating a change in market expectations.
Growth × Inflation (GI)
The current regime of Growth Acceleration × Inflation Reacceleration suggests a period where economic growth is picking up 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 week, 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 compared to historical norms over the past decade. The federal funds rate is at 4.09%, and the two-year yield is at 3.54%. Compared to last week, financial conditions have moved somewhat tighter, as indicated by a slight increase in the financial conditions score.
Yield Curve (R)
The yield curve is currently flat, with a spread of 0.31 percentage points between the 10-year and 3-month yields. This flatness suggests a cautious market outlook, often associated with uncertainty about future growth. Compared to last week, the yield curve has steepened slightly, moving from a spread of 0.24 percentage points. This change may reflect shifting expectations about 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 2.91%. The z-score of -1.03 indicates that spreads are significantly tighter than the long-term average, and the percentile rank of 5.92% places current conditions among the tightest observed over the past decade. Compared to last week, there has been a slight compression in spreads, suggesting continued favorable conditions for borrowers in the high-yield market.
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 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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