The Federal Reserve Board has released its latest Financial Stability Report, assessing the health of the U.S. financial system. The Fed says the system is under more pressure than usual, citing global risks, a balance sheet at roughly $6.5 trillion (21% of nominal GDP), and severe stress test scenarios.
Balance Sheet Reduction Governor Stephen Miran proposes shrinking the Fed's balance sheet by $1 to $2 trillion. The rationale includes reducing the Fed's market footprint, lowering portfolio loss risk, guarding the boundary between monetary and fiscal policy, and preserving future expansion flexibility.
Stress Test Projections The severe 2026 scenario assumes a 58% drop in equity prices, CPI inflation falling to 1%, the 3-month Treasury rate at 3.1% through early 2029, and rising unemployment with a potential recession lasting until 2029.
No Crypto Assessment Despite the growth of digital assets, the report contains no material evaluation of crypto-related risks. The IMF's recent report also omits a specific crypto assessment, focusing instead on traditional vulnerabilities like leveraged lending, commercial real estate, and Treasury liquidity.