If the Fed cuts, will financial conditions ease to COVID levels?

[Financial stock market graph. Selective focus.]
Diego Thomazini/iStock via Getty Images

The markets are expecting the Fed to cut at its September meeting, kicking off another rate-cut cycle..

But financial conditions are already loose, according to Goldman Sachs.

Looking at the chart below, "other than the period around the 2021 mini bubble, US financial conditions haven’t been this easy in the post-COVID era," Tony Pasquariello, global head of hedge fund coverage at Goldman, said.

Given "that stock prices are the largest component here, I wouldn’t necessarily argue this portends higher stock prices," he said. "But, viewed through the interplay of the financial markets and the economy, I certainly don’t read it as a bearish signal."

[Goldman Financial Conditions Index]
Goldman Financial Conditions Index (Goldman Sachs)

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