This study investigates the influence and role of the Financial Conditions Index (FCI) on the transmission mechanism of monetary policy within the context of China’s financial market. By examining the theoretical foundations and construction methods of the FCI in both domestic and international contexts, and integrating classical models of monetary policy transmission, the study proposes an analytical framework suited to China’s economic environment. Utilizing empirical analysis methods, it explores the critical role of the FCI in the execution of monetary policy and analyzes its differential effects across regions and time dimensions, as well as its impact on economic regulation. The findings reveal that the FCI effectively reflects the transmission effects of monetary policy and partially uncovers structural issues in policy implementation. The study also provides policy recommendations for optimizing the monetary policy toolkit and enhancing financial market monitoring to improve the effectiveness of China’s monetary policy execution, offering theoretical support and practical guidance.