In recent months, short-term credit markets have functioned better than in the summer but have remained strained, risk spreads on corporate bonds have risen markedly further on concerns about the near-term outlook for corporate credit quality, and equity prices have weakened considerably.
Moreover, substantial uncertainty remains about the magnitude and distribution of credit losses going forward and the extent to which those losses will lead to tighter credit conditions. To help place these developments into perspective, I would note that the turmoil in financial markets emerged at a time when the economy was otherwise in pretty good shape.