WASHINGTON—Following the release of the Federal Reserve's inaugural Financial Stability Report, NAFCU Chief Economist and Vice President of Research Curt Long said economic growth is strong, but "there are signs that risks are developing."
"Corporate debt is one key area to watch, as years of easy money have contributed to a rise in debt levels," Long cautioned.
The Financial Stability Report revealed that business-sector debt relative to the GDP "is historically high and there are signs of deteriorating credit standards." Household borrowing, alternatively, "is at a low-to-moderate level relative to incomes," the report found.
As CUToday.info reported here, in a speech last week Fed Chair Jerome Powell indicated the above-trend corporate debt ratio could exacerbate a future downturn, though such conditions "are unlikely to pose a threat to the safety and soundness of the institutions at the core of the system."
In addition to highlighting various indicators, such as unemployment and price stability, that point to a strong economy, Powell also outlined the Fed's new approach to financial stability and flagged risks the Fed is watching as it considers its approach to interest rates.