The US Federal Bank has stated that national economy is growing robustly but outside influences could affect it negatively like the ongoing trade tussle between US and China that seems to be getting worse with passage of time. The bank warned in its first report on vulnerabilities in the financial system that escalation of trade barriers with China and other European nations along with other geopolitical uncertainties around the globe would spark a decline. This could be due to multiple reasons like decline in investors’ risk appetite that caused the recent decline in share markets and other assets.
Federal bank cautioned that current fall in asset prices are quite large which could make it expensive for non-financial businesses to obtain funding. It outlined that funding risks are usually low unlike the period that led to the financial crisis but there are few hidden problems that could make both markets and financial institutions vulnerable. These notable risks are historically high business debt, deteriorating credit standards and enlarged risk appetite of investors. Markets in the past few weeks have been thrown out of balance as the date for proposed meeting between president Trump and president Xi Jinping draws near in anticipation of a positive end to the tariff crisis.
The ongoing trade war between two of the world’s largest economies has so much at stake that businessmen of both nations are hoping for a breakthrough and cessation of all tariffs. Policy makers are sure that a resilient banking system with large stores of cash and capital would be able to handle falling asset prices with far more tenacity and strength. Fed chairman Jerome Powell stated that risks of destabilization that were present before during the financial crisis are very low as institutions at the heart of American financial system are far more resilient though financial markets are spiraling downwards.