The Federal Reserve recently released a new survey highlighting the potential risks facing the U.S. financial system. The survey, conducted bi-annually, pointed to rising concerns around global trade, general policy uncertainty, and the sustainability of U.S. debt as top issues.
One of the key findings of the survey was the impact of President Donald Trump’s aggressive policy agenda, particularly in relation to tariffs. Respondents expressed heightened worries about global trade risks, with 73% citing it as a top concern, more than double the number reported in the previous survey. Policy uncertainty was also a major issue, with half of respondents listing it as a top concern.
The report noted that while some respondents viewed tariffs as a key risk, incremental tariffs on imported goods were seen as potentially manageable for the domestic economy. However, the potential for an escalatory trade war was seen as having more severe consequences.
Changes in government spending priorities and the extent of U.S. international engagement were identified as drivers of uncertainty. The survey also highlighted concerns related to recent market turmoil, with worries about functioning Treasury markets, foreign divestment of U.S. assets, and the value of the dollar on the rise.
Despite these risks, the survey found relative stability in various areas. Commercial real estate prices, a long-standing concern following the COVID-19 pandemic, were showing signs of stabilizing. Although markets experienced strain in early April due to low liquidity in stocks and Treasury bonds, the Fed reported that both markets remained orderly.
The Fed also noted that asset valuations remained relatively high even after the April selloff, and residential real estate prices were elevated. While the U.S. banking system was deemed sound and resilient, the survey highlighted an increase in bank credit commitments to less regulated non-banks.
Overall, the survey painted a mixed picture of the U.S. financial system, with concerns around global trade and policy uncertainty looming large. Despite these risks, the Fed emphasized the overall stability of the banking system and the resilience of financial markets.
