Fed: Inflation, Ukraine Biggest Threats to Financial System

[bluewater]

Source: NBC News

The Federal Reserve said Monday that Russia's war in Ukraine and surging inflation are now the greatest threats facing the global financial system, supplanting the coronavirus pandemic.
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The Fed said economic uncertainty has increased since the bank's previous report, with the Ukraine war being a big part of the deterioration. The bank also highlighted the large fluctuations in asset prices — from Treasuries to stocks — as investors reevaluate risk in a high-inflation environment.

“Inflation has been higher and more persistent than expected, even before the invasion of Ukraine, and uncertainty over the inflation outlook poses risks to financial conditions and economic activity," the Fed said in its report.

The Fed said persistently high inflation may require central bankers to quickly raise interest rates, which could also be a potential risk for financial instability in the form of lower economic output as well as higher borrowing costs for individuals and businesses. It could cause debt levels, which the Fed says are elevated but not yet a major concern, to become unsustainable for some businesses.






Read more: https://www.nbcnewyork.com/news/national-international/fed-inflation-ukraine-biggest-threats-to-financial-system/3679103/?msclkid=33d57769cfe111ec8242a66a021c9587

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The Fed said persistently high inflation may require central bankers to quickly raise interest rates, which could also be a potential risk for financial instability in the form of lower economic output as well as higher borrowing costs for individuals and businesses.

I posted two articles on the this topic today. In the first, experts said that interest rates must be lowered at once to ensure a soft landing for the stock market and to avoid further economic instability. In this article, the Federal Reserve says persistently high inflation might require raising interest rates sharply, while hedging that doing so could result in financial instability.

Wonderful. Just wonderful.

The fear is that we might get the worst of both outcomes, persistent inflation and a recession leading to further significant stock declines.