US FOMC Financial Stability Report

This report presents the Federal eserve oard’s current assessment of the stability of the U.S. financial system. y publishing this report, the oard intends to promote public understanding by increasing transparency around, and creating accountability for, the Federal eserve’s views on this topic. Financial stability supports the objectives assigned to the Federal eserve, including full employment and stable prices, a safe and sound banking system, and an efficient payments system. A financial system is considered stable when banks, other lenders, and financial markets are able to provide households, communities, and businesses with the financing they need to invest, grow, and participate in a wellfunctioning economy—and can do so even when hit by adverse events, or “shocks.” post: U.S. GOVERNMENT FISCAL SUSTAINABILITY TOPS LIST OF SALIENT FINANCIAL SYSTEM RISKS CITED IN FED SURVEY OF MARKET CONTACTS FOR SEMI-ANNUAL FINANCIAL STABILITY REPORT post: PERSISTENT INFLATION DROPS TO NO. 5 ON RISKS LIST FROM NO. 1 IN PRIOR SURVEY, NOW TIED WITH GLOBAL TRADE RISKS: FED SURVEY post: MIDDLE EAST TENSIONS, POLICY UNCERTAINTY, U.S. RECESSION ALSO AMONG TOP-CITED POTENTIAL SHOCKS: FED SURVEY post: STABLECOIN ASSETS ROSE TO NEAR-RECORD $170 BLN BY EARLY NOVEMBER, CAN SCALE RAPIDLY, REMAIN VULNERABLE TO RUNS: FED REPORT

This report reviews vulnerabilities affecting the stability of the U.S. financial system related to valuation pressures, borrowing by businesses and households, financial-sector leverage, and funding risks. It also highlights several near-term risks that, if realized, could interact with these vulnerabilities. A summary of the developments in the four broad categories of vulnerabilities since the October 2023 Financial Stability Report is as follows: Asset valuations. Valuations rose further to levels that were high relative to fundamentals across major asset classes. Equity prices grew faster than expected earnings, pushing the forward price-to-earnings ratio to the upper end of its historical distribution. Corporate bond spreads narrowed and currently stand at levels that are low relative to their long-run averages. Residential property prices remained high relative to fundamentals and prices continued to rise in recent months. Prices of commercial real estate (CRE) declined amid weak demand for office properties (see Section 1, Asset Valuations). 2. Borrowing by busine post: FED FINANCIAL STABILITY REPORT: PERSISTENT INFLATION AND TIGHTER MONETARY POLICY REMAINS THE MOST CITED POTENTIAL RISKS TO THE FINANCIAL SYSTEM. post: FED FINANCIAL STABILITY REPORT: NEARLY TWO-THIRDS OF RESPONDENTS MENTIONED POLICY UNCERTAINTY AS A RISK, SIGNIFICANTLY HIGHER THAN IN THE OCTOBER REPORT.

This report presents the Federal Reserve Board’s current assessment of the stability of the U.S. financial system. By publishing this report, the Board intends to promote public understanding by increasing transparency around, and creating accountability for, the Federal Reserve’s views on this topic. Financial stability supports the objectives assigned to the Federal Reserve, including full employment and stable prices, a safe and sound banking system, and an efficient payments system. A financial system is considered stable when banks, other lenders, and financial markets are able to provide households, communities, and businesses with the financing they need to invest, grow, and participate in a wellfunctioning economy—and can do so even when hit by adverse events, or “shocks.” post: FED FSR: *FED FLAGS PERSISTENT INFLATION AS POSSIBLE FINANCIAL RISK *FED: DEPOSIT OUTFLOWS HAVE LARGELY STABILIZED SINCE MARCH *FED: WORSENING GEOPOLITICAL TENSIONS COULD HURT GLOBAL MARKETS

This report presents the Federal Reserve Board’s current assessment of the stability of the U.S. financial system. By publishing this report, the Board intends to promote public understanding by increasing transparency around, and creating accountability for, the Federal Reserve’s views on this topic. Financial stability supports the objectives assigned to the Federal Reserve, including full employment and stable prices, a safe and sound banking system, and an efficient payments system. A financial system is considered stable when banks, other lenders, and financial markets are able to provide households, communities, and businesses with the financing they need to invest, grow, and participate in a wellfunctioning economy—and can do so even when hit by adverse events, or “shocks.” Consistent with this view of financial stability, the Federal Reserve Board’s monitoring framework distinguishes between shocks to, and vulnerabilities of, the financial system. Shocks are inherently difficult to predict, while vulnerabilities, which are the aspects of the financial system that would exacerbate stress, can be monitored as they build up or recede over time. As a result, the framework focuses primarily on assessing vulnerabilities, with an emphasis on four broad categories and how those categories might interact to amplify stress in the financial system post at 4:00pm: Fed Says the Banking Sector Overall Remained Resilient with Substantial Loss-Absorbing Capacity *Fed: Higher Rates, Geopolitical Tension Among Near-term Risks *Fed: Ongoing Bank Stress Could Lead to Marked Economic Slowdown post at 4:01pm: Fed: Recent Turmoil in Banking Industry Has Stabilized, but Could Weigh on Credit Conditions Going Forward Fed: SVB and Signature Bank Were Outliers in Terms of Their Heavy Reliance on Uninsured Deposits; Most Banks Had a Much More Balanced Mix of Liabilities

post at 4:01pm: Fed’s Brainard: - Current Macro Environment Raises Risk of Financial Shocks - Recent Market Volatility Underscores Fed’s Stability Vigilance - on Balance, Households, Businesses Able to Service Debts - Key for Fed, Regulators to Monitor Financial Stability RisksStatement by Vice Chair Lael Brainard The volatility over the past six months once again demonstrates the importance of our efforts in the Financial Stability Report to identify, analyze, and closely monitor financial system vulnerabilities. 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. Today's environment of rapid synchronous global monetary policy tightening, elevated inflation, and high uncertainty associated with the pandemic and the war raises the risk that a shock could lead to the amplification of vulnerabilities, for instance due to strained liquidity in core financial markets or hidden leverage. It's important to remain attentive to the risks raised in the report and to work with domestic and international regulators to support the resilience of the financial system.

The latest Financial Stability Report underscores the importance of our ongoing work to identify and closely monitor risks to the financial system and to ensure the financial system remains resilient. In particular, the report assesses how key financial system vulnerabilities and strengths have evolved over the last six months. Among other findings, it is noteworthy that households and businesses have decreased their borrowing as a percentage of gross domestic product (GDP), and currently appear to have resources to cover debt ...