Fed issues "hot" warning about US economy

The possibility of persistent inflation leading to higher interest rates and potential losses in the commercial real estate market were the top concerns of participants in the Fed's survey on financial stability, the US Federal Reserve (Fed, central bank) said on October 20.

The Fed warned that if the economy suddenly slows, high leverage ratios in general could strain or even “sink” some businesses. (Source: Reuters)

The Fed report found that three-quarters of respondents considered the two issues to be the most significant risks to the U.S. economy in the short term. Nearly half were concerned about the stability of the banking sector following the failures of three major banks this spring.

A weakening Chinese economy was cited as the top risk by 44% of respondents, up from 12% in May. Meanwhile, the Russia-Ukraine conflict has dropped to 11th place among respondents’ top concerns, after being listed as the top financial stability concern a year ago.

The Fed noted that the survey ended in early October 2023, before the conflict between Israel and the Hamas movement took place.

Overall, the Fed identified a number of “weaknesses” in the financial system, including historically high asset valuations (stocks and real estate). Specifically, the Fed found that commercial real estate valuations remained high, even as prices fell amid high office vacancies.

The Fed warned that if the economy unexpectedly slows, high leverage ratios could strain or even “submerge” some businesses. While the overall U.S. banking system remains strong, the Fed said some banks are still struggling with “significant” declines in asset values as interest rates rise rapidly.

Source: https://baoquocte.vn/fed-ra-canh-bao-nong-ve-kinh-te-my-247020.html