Fed: Inflation seen as biggest financial risk

The US Federal Reserve (Fed) reported that persistent inflation and monetary tightening are seen as the biggest risks to financial stability. The Fed has published the April issue of its Financial Stability Report, which includes assessments of the current state of the American financial system. The report noted that persistent inflation and the effects of tight monetary policy continue to be the most frequently cited risk among market participants. The report, which conveyed that most market participants stated that a reacceleration of inflation could keep interest rates high for longer than expected, said, “The risk that persistent inflationary pressures will lead to a more restrictive monetary policy stance than expected continued to be the most frequently cited risk.” The Middle East and Ukraine are risks to the global economy The report also noted that nearly two-thirds of participants see policy uncertainty as a risk, and drew attention to many areas of uncertainty, including trade policy and other foreign policy issues related to rising geopolitical tensions. The report also conveyed that policy uncertainty regarding the presidential elections to be held in the US in November. The Fed's report noted that the conflicts in the Middle East and Russia's ongoing war in Ukraine pose risks to global economic activity, including the possibility of continued disruptions to energy and commodity markets and global value chains. The report noted that further geopolitical tensions or policy uncertainty could dampen economic activity, and that this could increase inflation and volatility in financial markets.