Federal Reserve: Geopolitical tensions may negatively affect global markets

The US Federal Reserve (Fed) reported that worsening global geopolitical tensions could negatively affect global markets on a large scale.

The Federal Reserve released the October edition of the Financial Stability Report, which includes assessments of the current state of the U.S. financial system.

The report states that worsening global geopolitical tensions could have a widespread negative impact on global markets.

RISK IN TRADE IN FOOD, ENERGY AND OTHER COMMODITIES

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“An escalation of these conflicts or a worsening of other geopolitical tensions could reduce economic activity and increase inflation around the world, especially if there are prolonged disruptions to supply chains and production,” the report says. the evaluation was carried out.

The bank’s report stated that the global financial system could be affected by lower risk appetite, declines in asset prices and losses for at-risk companies and investors, including those in the United States.

A RISK IS PERMANENT INFLATION

The report also noted that persistent inflation in the US and other developed economies may pose a risk to the global financial system, and stated that energy prices have increased significantly in recent months and this has led to a renewal of the cost pressures that companies may experience. to his clients.

The report states that if inflation becomes unexpectedly permanent for any reason, it may lead to upward revisions to interest rates.

The report noted that a significant slowdown in economic growth could pose a risk to the financial system and cause difficulties in the commercial real estate market, and that slowing growth would reduce the profits of non-financial companies and possibly lead to financial stress. and defaults in some companies.

The report stated that such dynamics could lead to job losses and pressure on households, which could lead to a mild economic recession.

‘THE SLOWDOWN IN CHINA CAN STRENGTHEN MARKETS’

The report notes that a further slowdown in China’s economic growth could worsen financial tensions in China and strain markets around the world, and that tensions originating in China could affect other emerging market economies, especially economies that depend from trade with China or from the loans granted. by Chinese institutions.

The report stated that, given the size of its economy and financial system, financial tensions in China could put pressure on global markets more broadly through disruptions in economic activities, deteriorating risk perceptions and possibly a strong appreciation of the dollar, and could potentially affect the United States. States too.

On the other hand, the report also analyzes the stress experienced in the banking sector following the collapse of Silicon Valley Bank (SVB) in the US, and states that the banking sector in general maintains a high level of liquidity, but some banks continue facing financial pressure. The report noted that volatility in the sector has decreased since March and deposit outflows have largely stabilized. (AA)