COVID-19 Is A Major Threat to Financial Stability According to the Federal Reserve

The Covid-19 pandemic remains one of the biggest near-term risks to the stability of the financial system, the Federal Reserve said, while noting that asset prices are vulnerable to significant declines if investor sentiment shifts.

Advancing vaccination against Covid-19, massive government spending and low interest rates have helped asset valuations continue their rise in recent months from levels that were already elevated, the Fed said in a report Thursday.

“Should risk appetite decline from elevated levels, a broad range of asset prices could be vulnerable to large and sudden declines, which can lead to broader stress to the financial system,” the central bank said in its semiannual Financial Stability Report. Such scenarios could materialize if progress on containing the virus falls short of expectations or the recovery stalls, straining some households and firms, the Fed said.

Read the source article at Morningstar

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