Inflation and US elections, risks to financial stability: Fed

“They also noted the political uncertainty associated with the US elections in November,” when incumbent Democratic President Joe Biden faces former Republican President Donald Trump.

The survey results were included as part of the Federal Reserve's latest Financial Stability Report, which looks at issues such as leverage and risk-taking across the economy to try to identify potential trouble spots.

The report was released more than two years after the Federal Reserve launched the most aggressive interest rate raising cycle since the 1980s in an attempt to curb rising inflation, a move that was widely predicted to lead to the economy into recession and would aggravate tensions in the financial sector.

But the latest report, like those that preceded it, shows little evidence of widespread risks to the financial system even though borrowing costs remain at their highest levels in a quarter-century.

But that overall impression of resilience also suggests potential problems for Fed officials who feel the economy needs to slow for inflation to sustainably return to the central bank's 2% target.

The strength of household and corporate balance sheets, the stability of banks, and the absence of imminent bubbles or other threats suggest that a slowdown will not occur through financial or credit channels that have virtually been a major part of the making. . of monetary policy.

Contacts were interviewed through March, when Federal Reserve officials began to have doubts about a continued decline in inflation and signaled that rate cuts might not happen as quickly as expected.