The report includes a survey of the Fed’s financial-market contacts conducted from late August to late October, conducted by New York Fed staff members. It also includes the central bank’s assessment of developing risks in four main areas: asset valuations, borrowing by businesses and households, leverage in the financial sector, and funding risks.
More than half of the respondents—54 percent—cited fiscal debt sustainability as a salient risk, up from 40 percent just six months ago. Respondents worry that more debt issuance by the Treasury could start to crowd out private investment or limit policy responses if there’s an economic slump, the survey found.
By contrast, respondents believe the banking sector remains “sound and resilient overall,” with capital ratios hovering around record levels and liquidity high, the Fed said. But in financial markets, the Fed found valuations remain elevated, liquidity is “generally…
