November's Rapid Financial Easing Raises Concerns for Markets and the Fed

Financial conditions eased at the fastest pace in four decades in November, raising concerns about the Federal Reserve's ability to cut interest rates as quickly as expected. The easing was driven by soaring stocks, falling Treasury yields, sliding crude-oil prices, a weaker U.S. dollar, and tighter credit spreads. While historically easing financial conditions have been positive for markets, some worry that if conditions continue to ease, it could lead to higher inflation. The Fed has not shown concern about the recent easing, but if conditions ease too much, they could push back against expectations for rate cuts, causing yields to rise, stocks to fall, and the U.S. dollar to strengthen.