Say it with me: Financial conditions are easy.

Now say it again. And again. Because it really is key in the context of the debate around the appropriate forward path for US monetary policy.

I talked at some length earlier this week about the discrepancy between, on one hand, a Chicago Fed gauge of US financial conditions and a New York Fed model of the neutral rate and, on the other, the idea that monetary policy settings are “restrictive.”

Long story short: Financial conditions suggest policy rates aren’t restrictive and the NY Fed’s estimate of short run neutral actually shows rates are outright accommodative, and set to become more so over the balance of the year assuming the FOMC cuts in line with the median 2025 dot from the September SEP.

The most important point to grasp in any debate about the neutral rate is that it doesn’t exist. Not at the aggregate level and not in any fixed way. Here’s how I put “way” back last year:

As a practical consideration, the neutral rate’s pretty useless. The idea that it’s possible to geolocate that rate and then manage policy dynamically to sustain the economy somewhere near the corresponding equilibrium, is fanciful. That rate, to the extent it exists, is at least a little bit different for every state, city, town and hamlet.

I should’ve added “household,” “income group” and “person.” That is: The neutral rate, to the extent it exists, is at least a little bit different for every household, income group and even for every person.

So, are current policy settings restrictive? Well, sure. If you’re paying interest on credit card balances, don’t own a home, don’t have a savings account or a money market fund, don’t have a large equity portfolio and struggle to make ends meet.

But are current policy settings restrictive for the well-off who own homes refinanced in 2020 at a three-handle, have money market funds throwing off monthly income at ~4% APY and have a stock portfolio returning 20% a year? No. Not at all.

The figure above shows you Goldman’s widely-cited US financial conditions index along with a version that strips out the impact of equities. The main gauge (i.e., including stocks) shows conditions are as easy as they’ve been since early 2022.

That’s the backdrop for Fed cuts. It’s not just that the Committee’s cutting rates into an economy that’s (probably) not on the brink of a recession, they’re cutting rates with financial conditions near the loosest ever — and with equities trading on a forward multiple that looks like it walked out of 1999 (or out of 2021).

“Jerome Powell is simply not going to risk a further [labor market] deterioration for the sake of bringing inflation back to target [and] this means financial conditions are going to get even easier, even though they have been on a consistently easier path since April’s tariff shock,” Citadel’s Nohshad Shah remarked, in a new note. “Risk-on is the only conclusion when FCI is easing this much.”

Nomura’s Charlie McElligott echoed that, even as he cautioned traders not to give up on their hedges. “The equities bull case needle has been threaded,” he said. “The dollar’s significantly weaker, securities portfolios are at the highs, cash is spinning off income, corporate credit spreads are at extreme tights and vol’s absolutely crunched across assets.”

The inexorable nature of the rally overwhelmed top-down sell-side strategists, who aren’t exactly shy about lifting their forecasts. The S&P came into this week around 3% above the average year-end Wall Street projection.

As Bloomberg pointed out, there are only two other historical episodes where the benchmark traded that far above the average Street year-end target with just three months left on the calendar. Those two instances: Last year and — wait for it — 1999, at the height of the dot-com bubble.