Fed says financial system holding up through turbulent year

Nov 4 (Reuters) – Even as global central banks rapidly tightened financial conditions this year, U.S. households, banks and businesses have so far been able to adapt, Federal Reserve Vice Chair Lael Brainard said as the Fed released its semiannual report on financial stability.

“Over the period, household and business indebtedness has remained generally stable, and on aggregate households and businesses have maintained the ability to cover debt servicing, despite rising interest rates,” Brainard said on Friday.

In written comments released along with the report, she restated concerns that the “rapid synchronous global monetary policy tightening,” along with surging inflation, the ongoing war in Ukraine and other risks, “could lead to the amplification of vulnerabilities, for instance due to strained liquidity in core financial markets or hidden leverage.”

The turbulent state of the world was captured in a survey of researchers and market participants who flagged an array of emerging concerns associated with the changes both in market conditions over the past year, and the worsening geopolitical situation.

More than half of those participating in the survey cited market liquidity and stress as a “salient risk,” an issue not mentioned at all in the Fed’s May financial stability report. Concern over Ukraine, inflation and oil prices remained high, but added to that is now potential conflict between China and Taiwan, cited by 42% of survey respondents.

Overall, however, the…

Read more…