The Federal Reserve's latest Financial Stability Report highlights persistent inflation and the 2024 presidential election as significant risks that could destabilize the financial system.
The Federal Reserve's recent survey has highlighted that persistent inflation and higher-for-longer interest rates are posing key risks to the United States' financial stability. The twice-yearly report, which draws on responses from market participants, academics, and other contacts, also pointed to geopolitical tensions and the upcoming 2024 U.S. presidential election as potential sources of financial shocks.
According to the Fed's semi-annual survey of 25 experts, "Contacts noted several areas of uncertainty including trade policy and other foreign policy issues related to escalating geopolitical tensions." In addition, with the U.S. elections approaching in November, the survey respondents underscored policy uncertainty, particularly as President Joe Biden is expected to compete against former President Donald Trump.
The findings were part of the broader Financial Stability Report that assesses the economy's leverage, risk-taking, and other potential trouble spots. This report comes after the Federal Reserve embarked on steep interest rate hikes to address soaring inflation.
The surveyed contacts, interviewed through March, began to express doubts about the pace of inflation decline and the likelihood of imminent rate cuts. In addition to inflation, the level of "policy uncertainty" was magnified by the escalation of violence in areas such as Israel and the Middle East, the ongoing war in Ukraine, and the volatile state of U.S. politics, making it the second-most cited threat to the financial system.
