Federal Reserve Releases Financial Stability Report
The Federal Reserve recently released its Financial Stability Report which provides the results of a review of conditions affecting the stability of the U.S. financial system, with the understanding that ongoing research is required since “some potential risks may be novel or difficult to quantify” and to “keep pace with changes in the financial system that could create new forms of vulnerabilities or add to existing ones.” Asset valuations, borrowing by businesses and households, leverage in the financial sector, and funding risks comprise the four broad categories analyzed by the Fed. In addition, near-term risks are also discussed within the report — persistent inflation and tighter monetary policy, banking-sector stress, commercial and residential real estate, and geopolitical tensions are among the frequently cited topics. Comparing the results of the 26 market contacts surveyed from August to October 2022 for the November 2022 report and the latest report’s 25 market contacts surveyed from February 2023 to April 2023, persistent inflation and monetary tightening remained a top-cited risk. However, among the remaining 4 of the top 5 most cited risks, the Russia-Ukraine war lowered to the 5th slot and banking-sector stress, U.S.-China tensions, and commercial and residential real estate filled the 2nd through 4th slots respectively.