Fed survey finds inflation fading as a risk next to debt, trade wars
Federal Reserve survey released on Friday.
«Concerns over U.S. fiscal debt sustainability was the top-cited risk. It was noted that increased Treasury issuance could begin to crowd out private investment or constrain policy responses in an economic downturn,» the U.S. central bank survey found, while a potential weakening of the economy and possibility of a global trade war moved higher on the list of worries.
These concerns have also been reflected in recent bond market behavior, with yields on 10-year Treasury notes, for instance, rising sharply over the last two months despite the Fed having cut its benchmark lending rate twice by a total of 75 basis points.
Alongside that, an estimate of Treasury term premium — a measure of the compensation that investors require to hold longer-term Treasury securities rather than shorter-term ones — was near the top of its range since 2010. Moreover, measures of interest rate volatility were above historic norms, in part due to «high uncertainty about the economic outlook and the associated path of monetary policy as well as heightened sensitivity to news about output growth, inflation, and the supply of Treasury securities.»
Meanwhile a potential weakening in the economy and the possibility of a global trade war moved higher on the list of worries.
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