President-elect Donald Trump may have campaigned hard against high inflation, but by the time of his Nov. 5 election victory financial professionals had moved on from rising prices and begun worrying about rising U.S. debt, possible recession, and risks to global trade as among the top threats to the stability of the financial sector, according to a new 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.”