Model methodsMacro-financial conditionsactive

Financial Conditions Index

A quarterly, standardized first-principal-component summary of eight U.S. financial and credit indicators, oriented so higher means tighter conditions.

Registry slug:: financial-conditions-index
Visible surface:: /conditions

Data and implementation

Vintage

141 quarterly observations from 1991-03-31 through 2026-03-31, measured 2026-08-30

Data tables

data/parquet/conditions_series.parquet

Engine

engine/finweave_engine/layers/macro/fci.py

Producer

scripts/build_conditions.py

Outputs

data/parquet/conditions_series.parquet

Source: Federal Reserve Economic Data (FRED)

Method

Each surviving component is standardized over the full sample after the documented term-spread and real-credit-growth sign inversions. The engine eigendecomposes the component correlation matrix and uses the first principal component's loadings, then re-standardizes the weighted composite to mean zero and standard deviation one.

Because the engine's designated high-yield-spread anchor is absent from the long-history component set, the producer resolves the arbitrary PCA sign against the BAA10Y credit-spread component. Tighter credit conditions therefore map to a higher index.

The published index is a small, transparent eight-indicator quarterly composite. It is not a replica of the weekly 105-measure Chicago Fed NFCI.

Methodology evidence

Path and lines	Evidence
engine/finweave_engine/layers/macro/fci.py:33-135	compute_fci() implements component standardization, PCA weighting, re-standardization, and the engine sign convention; classify_fci_regime() applies the regime thresholds.
docs/conditions_methodology.md:67-92	Documents the exact z-score, PCA-loading, re-standardization, build orientation, and classification rules used here.
docs/conditions_methodology.md:605-635	Summarizes the parameters and discloses the quarterly eight-component composite's modest NFCI benchmark correlation.

Equations

Component z-scorez = (x - mean) / std

PCA-weighted compositeFCI_raw = Z @ pc1_loadings

Re-standardized FCIFCI = (FCI_raw - mean) / std

Regime classificationEXPANSION if FCI < -0.5; NEUTRAL if -0.5 <= FCI <= 0.5; TIGHTENING if 0.5 < FCI <= 1.5; STRESS if FCI > 1.5

Validation

The output contains 141 FCI observations from 1991-03-31 through 2026-03-31.
The methodology records the correctly oriented 2008Q4 stress peak and an NFCI correlation of 0.28 over the 141-quarter comparison, a modest relationship that is disclosed rather than treated as replication.

Limitations

Two quarterly inputs force quarterly frequency, which can average away sharp intra-quarter market stress.
The credit-spread channel rests on BAA10Y because the ICE OAS series are truncated in FRED and TEDRATE is discontinued.
Full-sample standardization and PCA make this a descriptive historical composite, not a point-in-time estimated forecasting model or a monetary-policy stance measure.

References

Brave and Butters (2011), Monitoring financial stability: A financial conditions index approach, Federal Reserve Bank of Chicago Economic Perspectives 35(1): 22-43.

Metadata endpoint

Path	Method	Returns	Example
/api/methods/[slug]	GET	Registry metadata, implementation paths, measured vintage, methodology evidence, validation, and limitations. No model observations or parquet contents.	/api/methods/financial-conditions-index