The Fed Warns of a Negative Feedback Loop, Fragile Liquidity, and More Volatile Prices – Mish Talk

Please consider the Fed’s May 2022 Financial Stability Report

Pertinent Warnings

  • Despite markedly higher Treasury yields, real and financial asset prices generally remained high relative to their corresponding expected cash flows.
  • House prices continued to rise at a rapid pace that outstripped increases in rents. 
  • Structural vulnerabilities persist at money market funds and some other mutual funds, and the rapidly growing stablecoin sector is vulnerable to runs.
  • Leverage was high at life insurers and somewhat elevated at hedge funds.
  • Central counterparties made larger margin calls amid elevated market volatility.

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