The US Federal Reserve no longer sees the Coronavirus pandemic as the main threat to the economy
Yesterday the Federal Reserve announced that they hold the Russia-Ukraine conflict alongside its concurrent inflation rates as the current major threats to the global financial system.
These statements came during the Fed’s financial stability report yesterday, in which they analyze trends in investments and the stock market. While this announcement is not meant to be a prediction or forecast, it certainly keeps investors and bankers up to date with economic concerns at the moment.
Economic uncertainty has gone up since their previous report, the Fed stated, with the major cause being the Russian-Ukrainian conflict. Asset prices have also seen massive fluctuations however due to the current inflation rate.
“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 stated during their report.
They also stated that bankers may have to rapidly raise their interest rates due to the inflation, leading to more uncertainty. Debt levels could become unsustainable for businesses, especially smaller ones as borrowing costs could become higher and higher. Worse inflation could lead to employment cuts as well due to higher interest rates, which might force the mortgage rate to increase.
“Further adverse surprises in inflation and interest rates, particularly if accompanied by a decline in economic activity, could negatively affect the financial system,” the central bank announced.
Federal Reserve Governor Lael Brainard believes the volatility in US commodity markets is another source of risk for the economy. Energy and industrial metals are two major but impactful examples that have led to many consumers have strong uncertainty in the market.
“The Federal Reserve is working with domestic and international regulators to better understand the exposures of commodity market participants and their linkages with the core financial system,” she stated on Monday
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