The Fed’s twice yearly Financial Stability Report highlights:
- U.S. government fiscal sustainability tops the list of financial system risks cited in the Fed survey of market contacts for the semi-annual Financial Stability Report.
- Persistent inflation dropped to No. 5 on the risks list from No. 1 in the prior survey, now tied with global trade risks.
- Trade issues, last cited as a salient risk in May 2020, were previously a top concern during Trump’s first term in 2019.
- Middle East tensions, policy uncertainty, and a potential U.S. recession are among the top-cited risks in the Fed survey.
- The NY Fed surveyed 24 market contacts from August to October on risks to U.S. financial stability.
- Asset valuation pressures are “elevated,” though corporate bond spreads remain low; business and household debt risks are considered “moderate.”
- Liquidity conditions in the Treasury cash market appear challenged and could amplify shocks.
- Financial sector leverage vulnerabilities remain notable, with hedge fund leverage near the highest levels since 2013.
- Stablecoin assets rose to nearly $170 billion by early November, with the potential for rapid scaling and vulnerability to runs.
This article was written by Greg Michalowski at www.forexlive.com.
