WASHINGTON, May 15 (Xinhua) -- The U.S. Federal Reserve (Fed) on Friday warned of significant vulnerabilities in the financial sector as the COVID-19 pandemic continues to sweep the nation.
The financial system "amplified the shock" associated with COVID-19 and financial sector vulnerabilities are "likely to be significant" in the near term, the Fed said in its semi-annual financial stability report.
"The strains on household and business balance sheets from the economic and financial shocks since March will likely create fragilities that last for some time," the report said, adding the banking sector and other financial institutions "may experience strains" as a result.
The report also warned that asset prices "remain vulnerable to significant price declines" should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains reemerge.
"Forceful early interventions have been effective in resolving liquidity stresses, but we will be monitoring closely for solvency stresses among highly leveraged business borrowers, which could increase the longer the COVID pandemic persists," Fed Governor Lael Brainard said Friday in a statement.
In the near term, risks associated with the course of COVID-19 and its effect on the U.S. and global economies "remain high," according to the report.
Fed Chairman Jerome Powell on Wednesday said the COVID-19 crisis raises "long-term concerns," warning that a prolonged recession and weak recovery could lead to an extended period of low productivity growth and stagnant incomes.
"The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II," Powell said in prepared remarks webcast by the Washington-based think tank Peterson Institute for International Economics.
The central bank chief said while the economic response has been "both timely and appropriately large," it may not be the final chapter, given that the path ahead is both "highly uncertain" and subject to "significant downside risks." Enditem
