OFR_2016_Financial-Stability-Report

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Financial Stability Assessment
Overall risks to financial stability remain in a medium range. U.S. financial
markets and institutions quickly recovered from substantial market volatility
early in 2016 and a confidence shock in June when the United Kingdom
(U.K.) voted to exit the European Union (EU).
Our overall assessment of financial stability is organized in the
five risk categories that we monitor regularly: macroeconomic,
market, credit, funding and liquidity, and contagion. Our Financial
Stability Monitor, a heat map of key risk indicators, contributes to
this analysis (see Figure 2).
Macroeconomic Risks to U.S. Financial Stability Are Most
Likely to Stem from Global Factors
U.S. economic growth since 2010 has been slower than before the financial crisis. It has also
been less volatile, even amid a slowdown in global growth. This year, U.S. real gross domestic
product (GDP) growth remained in a moderate, post-crisis range of 1.5 to 3 percent (see Figure
3). While U.S. inflation has fallen due to low oil prices, U.S. core inflation (which excludes food
and energy prices) and long-term inflation expectations are near 2 percent, the level the Federal
Open Market Committee considers consistent with its mandate (see Figure 4).
We continue to see important downside risks to U.S. growth, though that alone does not
threaten financial stability. Specifically, slow global growth and the strong dollar continue to put
pressure on U.S. corporate earnings. A Federal Reserve model estimates that a 10 percent dollar
Note: All data cited in this report are as of Sept. 30, 2016, unless otherwise noted.
Financial Stability Assessment 7