The Federal Reserve (Fed) of the United States has cautioned that a rise in interest rates and the use of stablecoins could endanger the US economy.
The study offers the Fed’s assessment of the financial system’s vulnerability and recommendations for promoting financial stability.
Two of the most notable points are that a fast rise in interest rates, as well as stablecoins, pose a risk to the economy.
Following the Fed’s half-point interest rate hike, the US economy, like many others across the world, is losing value. Yesterday, the S&P 500 fell below 4,000 for the first time since March 2021. And analysts predict much further losses.
The market’s decline is mostly due to an increase in interest rates. High inflation rates have also been impacting consumers in the world’s largest economy. The Fed warns that more bad news on inflation and interest rates will exacerbate the problem.
The Fed warns of increased volatility.
It also mentions:
“Additionally, a sharp rise in interest rates could lead to higher volatility, stresses to market liquidity, and a large correction in prices of risky assets, potentially causing losses at a range of financial intermediaries, reducing their ability to raise capital and retain the confidence of their counterparties.”
The Fed also feels that stablecoins are prone to runs and that the industry “remains susceptible to liquidity risks” as it continues to grow rapidly. The assets behind them may lose value and become illiquid, according to the research.
The dollar, according to some observers, has profited from the high levels of Treasury yields. They also believe that economic upheaval in other economies will cause the dollar to strengthen further.
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