Covid-19 Still Among Major Risks to Financial Stability, Fed Says
May 06 2021 - 3:30PM
Dow Jones News
By Paul Kiernan
WASHINGTON -- 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.
The report echoed recent comments from central bankers,
including Chairman Jerome Powell, who last week described parts of
the financial market as "a bit frothy." Still, other pillars of the
financial system have either remained sturdy or improved over the
past six months, as trillions of dollars of government stimulus
spending and a recovering labor market have strengthened the
finances of households and businesses.
"The overall financial-stability picture is mixed," Mr. Powell
said last week. "But on balance, you know, it's manageable, I would
say, and...it's appropriate and important for financial conditions
to remain accommodative, to support economic activity."
The Fed's efforts to encourage a recovery from the
pandemic-induced downturn have helped lift asset prices. The
central bank has kept its key interest rate near zero since March
2020, making it cheaper for businesses and households to borrow and
spend on things like machinery, cars and homes. It also buys $120
billion worth of Treasury and mortgage-backed securities each
month, which holds down long-term interest rates and encourages
investors to shift money into riskier assets such as stocks and
corporate debt.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
May 06, 2021 16:15 ET (20:15 GMT)
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