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Inflation tops pandemic as investor concern -Fed report

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WASHINGTON — Concerns over higher inflation and tighter monetary policy have become the top concern for market participants, pushing aside the COVID-19 pandemic, the Federal Reserve said on Monday in its latest report on financial stability.

At the same time, the semiannual report also flagged the growing use of stablecoins and “so-called meme stocks” as issues that merit attention and pose new types of potential risks to the financial system.

Roughly 70% of market participants surveyed by the Fed flagged inflation and tighter Fed policy as their top concern over the next 12 to 18 months, ahead of vaccine-resistant COVID-19 variants and a potential Chinese regulatory crackdown.

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The Fed is struggling with inflation risk itself as it debates when interest rates may need to rise, and at this point investors expect the central bank will be forced to act sooner than policymakers themselves anticipate.

The focus on inflation marks a return, in a sense, to more normal concerns as the pandemic eases, and the Fed’s report largely portrayed financial risks as well-contained.

“Fiscal and monetary policy accommodation, along with continued progress on vaccinations, continued to support a strong economic recovery,” the report stated. “Despite the tragic human toll, the Delta variant has left a limited imprint on U.S. financial markets.”

The Fed found that vulnerabilities in businesses and households were generally down, thanks in part to low interest rates and government support programs. Home prices were up broadly, but there was little sign of erosion in underwriting standards or speculative behavior.

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While the overall credit quality of bank portfolios broadly improved in the last six months, the Fed noted delinquency rates for commercial real estate borrowers and other industries impacted by the pandemic remain elevated. It also flagged that leverage remained high for life insurance companies and hedge funds.

But the Fed did identify concerns, led by uncertainty over the course of the pandemic, degrees of government support, and the expected economic rebound.

“Uncertainty over the course of the pandemic and the expiration of relief programs may pose significant risks to household balance sheets,” the report stated.

‘MEME’ STOCKS

In a first, the Fed devoted a section of its report to specifically explore the rapid, social media-driven volatility in some stocks like GameStop and AMC Entertainment Holdings Inc.

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While wild swings in their prices and other “meme” stock crazes have had a limited impact on financial stability, the Fed said the issue presents some potential concerns. For one, younger investors who flock to these companies tend to have higher household debt burdens, leaving them more vulnerable if asset prices crash.

In addition, the Fed said risk appetite among investors was at levels not seen since the “dot com” boom of 2001, but that conditions could change quickly, with volatility potentially supercharged by social media, should the pandemic worsen or economic recovery stall.

Risk management systems at financial institutions, the Fed said, may not be calibrated to account for the new high-risk investing approach to retail trading.

“A potentially destabilizing outcome could emerge if elevated risk appetite among retail investors retreats rapidly,” the report noted.

The Fed also highlighted the growing use of “stablecoins,” which are digital currencies whose value is supposed to be tied to a traditional currency like the U.S. dollar. The rapid adoption of these products has caught the attention of regulators, who worry they could be susceptible to runs and lack proper oversight. (Reporting by Pete Schroeder, Editing by Nick Zieminski and Dan Grebler)

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Bloomberg names Green ME of finance for Americas

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Rick Green

Rick Green has been named managing editor for finance in the Americas at Bloomberg News, effective July 11.

He is currently senior editor for markets at Bloomberg.

Green was previously a team leader for distressed company news. He was also corporate finance editor and a senior editor on the U.S. finance team.

Before Bloomberg, Green was assistant managing editor for business and technology at Newsday. He also worked at BusinessWeek magazine as a senior editor and at SmartMoney magazine.

 





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Liberty Steel secures time with Greensill as debt rstructuring continues

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Liberty Steel Group has entered a standstill agreement with Greensill Bank.

It pauses all enforcement actions between the South Yorkshire headquartered business and the subsidiary of the collapsed financial institution as it focuses on recovery.

Greensill Bank, part of Greensill Capital, is Liberty’s largest creditor on the business’s debt facilities, provided in 2019.

Read more:£26m British Steel Special Profiles upgrade given the go-ahead

The agreement lasts until October 31, with potential to extend until the end of the year.

Liberty said it will enable the company to develop a longer term sustainable financing structure, with detailed due diligence and information exchange continuing between the two parties.

A Liberty spokesperson said: “Today’s standstill agreement with Greensill Bank demonstrates we are getting close to a consensual debt restructuring that is in the best interests of all our stakeholders.

“We are working intensively towards a settlement with our major creditors in a timeframe which would obviate the need for a legal battle. Our core businesses continue to perform well and are operationally strong despite some economic headwinds.”

HMRC had filed then withdrew a winding up petition for Liberty earlier this year as progress with creditors was made.



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At Close of Business: Jordan Murray talks an Australian republic

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Journalist Jordan Murray discusses revived debate over the possibility of an Australian republic.



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