Fed survey points to in‹ation, U.S. election as key nancial stability risks
Persistent in¤ation and higher-for-longer interest rates were cited as key risks to nancial stability in the Federal Reserve’s latest survey of U.S. central bank contacts, with geopolitical troubles and the 2024 U.S. presidential election also mentioned as “a potentially signicant source of shocks.”
‘Escalating tensions’ “Contacts noted several areas of uncertainty including trade policy and other foreign policy issues related to escalating geopolitical tensions,” the Fed said on Friday in its semiannual survey of 25 market participants, academics and other contacts. “They also noted policy uncertainty associated with the U.S. elections in November,” when the Democratic incumbent Joe Biden faces Republican former President Donald Trump.
The survey results were included as part of the Fed’s latest Financial Stability Report, which looks at issues like leverage and risk-taking throughout the economy to try to identify potential trouble spots.
The report was released more than two years after the Fed launched the most aggressive interest rate hiking cycle since the 1980s in a bid to slow a surge in in¤ation, a move that was broadly predicted to tip the economy into recession and aggravate stresses in the nancial sector.
The latest report shows little evidence of widespread risks to the nancial system despite borrowing costs remaining at their highest levels in a quarter of a century. Private debt as a share of national economic output declined, businesses maintained a “robust” capacity to service debt, and overall household debt was “modest,” all markers of stability.
“The banking system remained sound and resilient,” with strong capital and liquidity levels, the Fed said in the report.