ANALYSIS-For central bankers, tighter financial conditions may be an ally

The widely used Goldman Sachs U.S. financial conditions index (FCI) shows a 100 basis points (bps) tightening this month alone. The last time the U.S. FCI contracted as sharply was during the February-March 2020 COVID-linked sell-off, Goldman data shows. Goldman's rule of thumb is that a persistent 100 bps FCI tightening slows GDP by about one percentage point after a year, in turn slowing inflation by roughly 0.1 percentage point.

LONDON: Slumping stocks and surging bond yields are rapidly crimping global financial conditions, yet given their effect on dampening economic growth and eventually inflation, the moves might be welcomed by the Federal Reserve and other central banks.

Financial conditions is the umbrella phrase for how metrics such as exchange rates, equity swings and borrowing costs affect the availability of funding for households and businesses. Tighter conditions are widely seen as heralding a growth slowdown and vice-versa.