Inflation and war in Ukraine are biggest threats to financial system: US Fed
The bank also pointed to sharp swings in asset prices – from Treasuries to stocks – as investors reassess risk in an environment of high inflation.
“Inflation has been higher and more persistent than expected, even before the invasion of Ukraine, and uncertainty about the inflation outlook poses risks to financial conditions and economic activity,” he said. the Fed in its report.
The US Federal Reserve recently said in its semi-annual Financial Stability Report that Russia’s war in Ukraine and soaring inflation are now the biggest threats facing the global financial system, supplanting the COVID-19 pandemic. 19. Economic uncertainty has increased since its previous report, with the war in Ukraine being a big part of the deterioration, he said.
The Fed said persistently high inflation could force central bankers to raise interest rates quickly, which could also pose a potential risk of financial instability in the form of lower economic output as well as higher borrowing costs for individuals and businesses.
This could cause debt levels, which the Fed says are high but not yet a major concern, to become unsustainable for some companies.
“Further negative inflation and interest rate surprises, particularly if accompanied by a decline in economic activity, could negatively affect the financial system,” the bank said.
Fed Governor Lael Brainard also cited recent volatility in commodity markets as a place of potential risk. While swings in the energy market have been in the headlines for several weeks now, other commodity markets, particularly those for industrial metals like nickel, zinc and lithium, have seen sharp swings.
“The Federal Reserve is working with domestic and international regulators to better understand the exposures of commodity market participants and their connections to the core financial system,” she said.
Fibre2Fashion (DS) News Desk