U.S. Financial Conditions Ease to 30-Year High as Markets Reverse July Tightening

Only two weeks after Federal Reserve Chair Kevin Warsh said markets had already absorbed "quite a bit" of the Fed's tightening, financial conditions have reversed sharply, Jared Blikre reported for Yahoo Finance.

U.S. financial conditions have eased sharply as markets rally despite the Federal Reserve keeping its benchmark interest rate unchanged.

A Bloomberg gauge of U.S. financial conditions rose Thursday to its easiest level since 1996, reflecting a significant easing in conditions for investors and borrowers.

Financial conditions broadly measure how easy or difficult it is for households, businesses and investors to obtain financing and take on risk.

The index reflects factors including stock prices, market volatility and corporate borrowing costs. An easing in financial conditions does not necessarily mean that consumer borrowing costs such as mortgage and credit-card rates have fallen by the same amount.

Between Warsh's first Federal Open Market Committee meeting on June 17 and the Fed's July 29 meeting, Treasury yields rose, stocks weakened, volatility increased and corporate borrowing costs rose.

The Fed left its benchmark interest rate unchanged at 3.5% to 3.75%.

Since the July 29 meeting, however, stocks have rallied sharply, volatility has fallen and corporate borrowing costs have declined. The reversal has occurred even though the Fed's benchmark rate has remained unchanged.