Here is a brief summary of what is of concern to domestic and international policymakers, academics, community groups, and others. We might call these “known risks.”
Persistent inflation and monetary tightening
- Persistent or reaccelerating inflationary pressures
- Resilient economic outlook leading to further monetary policy tightening
- Volatile market conditions
- Entrenched expectations of higher inflation leading to higher realized inflation leading to even more restrictive monetary policy
- Induces and even exacerbates recession
Commercial real estate
- Potential trigger for systemic stress
- Higher interest rates
- Declining property prices
- Structural shifts in demand for office space may prompt large realized losses
- Small and regional domestic bank vulnerability
- Tighter bank lending conditions
Reemergence of banking-sector stress
- Renewed deposit outflows
- Uninsured deposits
- Losses on CRE exposures
- Market liquidity strains and volatility
- Vulnerabilities among highly levered NBFIs
Weakness in the Chinese economy and financial sector
- Capital flight
- Stronger U.S. dollar
- Downward pressure on Chinese assets and other Asian markets
- Alongside weakness in Europe, increased likelihood of a global recession
- Increased foreign exchange market volatility
- Implementation of capital controls
Fiscal debt sustainability
- Treasury market volatility
- Treasury market liquidity strain
- Higher long-term interest rates and bond term premia
- Increases in sovereign bond issuance
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