The GS Financial Conditions Index (FCI), often referred to as the Goldman Sachs FCI, is a measure created by Goldman Sachs to assess the overall financial conditions in an economy. It is designed to provide a snapshot of the ease or tightness of financial conditions and how they may impact economic activity.
The GS FCI incorporates a wide range of financial market indicators, including interest rates, credit spreads, equity market performance, exchange rates, and other relevant factors. By aggregating these indicators, the index aims to capture the overall state of financial conditions, which can be influenced by factors such as monetary policy, market sentiment, and investor behavior.
A lower value of the GS FCI indicates accommodative or loose financial conditions, which typically implies easier access to credit, lower borrowing costs, and positive market sentiment. This can potentially stimulate economic growth. Conversely, a higher value of the index suggests tighter financial conditions, which may indicate higher borrowing costs, reduced credit availability, and a more cautious market sentiment. Tighter financial conditions can potentially act as a headwind to economic growth.