Monetary policy

How financial conditions are withstanding tighter monetary policy

In December 2015, the Fed began to gradually tighten its monetary policy stance. Since then it has raised the fed funds rate five times (with another probable hike in March), as well as starting to reduce its balance sheet. In the past, tighter monetary policy has been passed through to economic activity via its effect on the universe of financial assets and consequently tighter financial conditions (see the first chart). In the current cycle, however, financial conditions are still highly accommodative (see the second chart). For economists, «financial conditions» are...

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