United States: Growth impulse questioned – Standard Chartered

Standard Chartered analysts Dan Pan and Steve Englander discuss the Federal Reserve’s Financial Conditions Impulse on Growth (FCI-G) index, noting it was highly accommodative in May 2026 and still supportive after the July FOMC. They highlight that recent equity sell-offs, a stronger Dollar and higher long-term rates have only moderately tightened conditions, and assess how this affects one-year-ahead US GDP growth projections.

Fed model shows still-loose conditions

"The Fed’s Financial Conditions Impulse on Growth (FCI-G) index was at its most accommodative level in May 2026 since the early 2000s, excluding the immediate COVID period."

"According to the Fed’s model, loose financial conditions ahead of the June FOMC were estimated to add more than 1.1ppt to GDP growth over the next year."

"Our subsequent FCI-G estimate – updated after the July FOMC meeting – shows that while the equity-market sell-off, a stronger USD and higher long-term rates tightened financial conditions between the June and July meetings, these moves were moderate compared to the financial-market rallies of the past few months."

"Our updated estimate shows that financial conditions are still set to boost one-year-ahead GDP growth by 0.9ppt."

"Our calculations show that the growth impulse from FCI-G would have been 0.1ppt higher if financial markets had stayed at pre-June FOMC levels."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)