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Financial Stability Report Sees Inflation Risk for Hawkish FED

Skerdian Meta•Friday, April 19, 2024•2 min read

The FED released the Semi-Annual Financial Stability Report which shows worries about high inflation and high interest rates for longer. Inflation has been sticky so far in 2o24, however, that is no reason to keep interest rates so high, which is hurting home sales as we saw this week.

The Financial Stability Report indicates a hawkish FED in 2024

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Today markets focused on calming fears after yesterday’s attack on Iran. Iran downplayed Israel’s bombing, emphasizing that it is not seeking reprisal. This shift in sentiment was enough to ease concerns in the market. Despite lingering risks as the weekend approaches, the market seems to be largely ignoring them.

This suggests a degree of confidence in the current situation. However, stock markets ended the day lower. The Federal Reserve also released the Financial Stability Report before US markets closed, indicating that the FED will be more hawkish than previously expected, which is bearish for stock markets.

FED Semi-Annual Financial Stability Report for April 2024

  • Persistent inflation and tighter monetary policy remain the most commonly cited potential risks to the financial system.
  • “Policy uncertainty,” which includes escalating geopolitical tensions and the upcoming US elections, is cited by 60% of respondents as a potential risk to financial stability. This is significantly higher than in the previous report.
  • Commercial real estate and banking sector stress are less frequently cited as stability risks compared to the Fed’s fall 2023 survey.
  • Other risks mentioned include cyberattacks, US-China tensions, and conflicts in the Middle East. Nonbanks and the Ukraine-Russia war have dropped off the risk list.
  • Leverage at hedge funds has reached its highest level since data collection began, raising concerns about financial stability.
  • Concerns over uninsured deposits and other factors continue to generate funding pressures for a subset of banks.
  • The Bank Term Funding Program saw participation from 1,804 out of more than 9,000 eligible institutions. Ninety-five percent of these institutions had assets of less than $10 billion.
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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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