Market Speaks: US Economic Outlook Has Weakened Amid Tighter Financial Conditions

15 Nov 2022 , 11:40 AM

The US Fed stated in a latest update that reforms following the Global Financial Crisis have helped the United States maintain a resilient financial system for consumers, businesses, and communities. Capital and liquidity positions remain above regulatory requirements. The Federal Reserves supervisory stress test, conducted earlier this year, showed that large banks had sufficient capital to maintain their lending to support the economy through the stressful conditions simulated by the stress test. Many issues at the forefront of banking regulation today were not prominent five or ten years ago, and some of them scarcely even existed. The recent events in crypto markets, while mostly occurring outside the banking sector, have highlighted the risks to investors and consumers associated with new and novel asset classes and activities when not accompanied by strong guardrails. In addition, despite the data depicting a generally healthy U.S. banking system, the domestic economic outlook has weakened amid tighter financial conditions and increased uncertainty. A weaker economy could put stress on households and businesses and, thus, on the banking system as a whole. Uncertainty has led to increased financial market volatility and may also reveal pockets of excess leverage and liquidity risk in the non-bank financial sector, which risks spillovers to the banking system and the real economy. The Federal Reserve will be heightening its focus on liquidity, credit, and interest-rate risks as supervised institutions manage the changing financial conditions. In the wake of the pandemic, the global recovery is uneven, inflation is far too high, and geopolitical events pose downside risks to the U.S. and other economies around the world. Russias war of aggression is devastating for the people of Ukraine, and is also disrupting commodities, energy, and food markets, and pushing up inflation around the world. And these factors—along with Chinas economic slowing, associated with its inward turn, pandemic shutdowns, and contraction in its real estate sector—are weighing on global economic growth. The Fed remains attentive to these and other developments.Powered by Commodity Insights