Fed: U.S. government fiscal sustainability tops the list of financial system risks

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.