The Fed raises the alarm: too many vulnerabilities within the monetary markets | EUROtoday

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ServiceThe US Central Bank

The US Central Bank factors the finger at extra leverage amongst operators, beginning with hedge funds. The prognosis of the banking system, nonetheless, is extra calm

The Federal Reserve, i.e. the US central financial institution, is sounding the alarm: there are “considerable” vulnerabilities within the monetary markets, whereas the stress that hit the banking sector a yr in the past has dissipated significantly. The central bankers' index focuses on the excessive stage of debt, or monetary leverage, which will increase dangers within the monetary markets.

The Fed then additionally recalled that share costs are at historic highs. In quick: a market stuffed with money owed (contracted when charges have been low because of the Fed's personal coverage) and with costs at highs. This is why the Fed talks about “vulnerability.”

The Fed says hedge fund leverage has stabilized, however at very excessive ranges. While life insurers discover themselves in a state of affairs the place they’re more and more depending on non-traditional sources of funding. At the identical time, though the banking system's sources of provide stay liquid and steady, funding prices have risen considerably. However, the Fed reassures on this entrance: “The banking system is strong and resilient” and “acute stress has decreased since last spring”. The curious side is that within the final financial coverage assembly the Fed had faraway from the press launch, for the primary time in months, the phrase: “The banking system is solid and resilient”. Now, nonetheless, he reiterates the idea.