40.4 F
Fort Worth
Thursday, December 3, 2020
Banking Powell says he sees 'moderate' risk from corporate debt

Powell says he sees ‘moderate’ risk from corporate debt

Other News

Exxon’s oil slick

Exxon Mobil is slashing its capital spending budget for 2020 by 30% due to weak demand caused by the COVID-19 pandemic and a market...

Folk music’s Mark Twain: 7 Essential tracks from John Prine,

NEW YORK (AP) — Some people, the songs just come out of them. For nearly half a century, they tumbled out of John Prine...

Tarrant County records another COVID-19 death

Tarrant County Public Health (TCPH) on Wednesday, April 8 reported that a resident of Euless has died as the result of the COVID-19 virus....

Tradition stymied: A year unlike any since WWII for Augusta

The Masters is so intertwined with Augusta, they added an extra day to spring break.You see, the first full week of April isn't just...

WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell said Monday that the central bank is closely monitoring a sharp rise in corporate debt but currently does not see the types of threats that triggered the 2008 financial crisis.

In remarks to a banking conference in Fernandina Beach, Florida, Powell said views about riskier corporate debt — known as leveraged lending — range from “this is a rerun of the subprime mortgage crisis” to “nothing to worry about here.”

He said his view lies somewhere in the middle. The risks currently are “moderate,” Powell said.

His comments followed a Fed report earlier this month that showed riskier corporate debt had grown by 20% in 2018 to $1.1 trillion, prompting the attention of regulators.

Investors are attracted to the riskier corporate debt because it pays higher returns than the very low rates they can receive on safer debt. Much of this debt is grouped together and used to back securities known as collateralized loan obligations.

Powell said that much of this borrowing, because it is “financed opaquely, outside the banking” system has prompted concerns it could “pose a new threat to financial stability,” just as similar debt instruments that bundled sub-prime mortgages helped to trigger the 2008 crisis.

However, Powell said he believes regulators learned the lessons of the 2008 crisis, which brought the worst financial crisis in the United States since the 1930s and pushed the country into the deepest recession since the Great Depression.

“The financial system today appears strong enough to handle potential business-sector losses, which was manifestly not the case a decade ago with subprime mortgages,” Powell said.

Powell said one key difference between 2008 and now is that the increase in business borrowing is not being fueled by a dramatic asset price bubble like the housing bubble of the past decade.

Improvements in banking regulation, such as annual stress tests for the nation’s biggest banks, have allowed regulators to make sure banks are in a position to withstand even a serious economic downturn, he said.

Powell’s speech focused on bank regulation issues rather than the Fed’s interest rate policies. After raising its key policy rate four times last year, the Fed has left the rate unchanged this year and is projecting no rates hikes for all of 2019.

However, President Donald Trump, seeking to ensure a strong economy going into the 2020 presidential election, has been pressuring the Fed to start cutting rates. While some economists believe the central bank may begin reducing rates later this year, other analysts think the more likely outcome is no rate changes for the entire year.

During a question and answer period following his speech, Powell was asked about the recent slowdown in inflation, which has fallen further below the central bank’s 2% target for annual price increases.

He said that the central bank is grappling with the issue that inflation pressures today are different than 25 years ago. He cited a variety of factors, such as the rise in internet sales, which help hold down prices.

The Fed is keeping close tabs on these “inflation dynamics” in deciding how to set interest rate policies, he said.

On another issue, Powell said the central bank is also closely watching the trade dispute between the United States and China and is prepared to alter interest rate policies if necessary. But he noted that, at the moment, the outcome of the U.S.-China trade negotiations is not known.


close






Oh hi there 👋 It’s nice to meet you.

Sign up to receive awesome content in your inbox.

We don’t spam! Read our privacy policy for more info.


close






Oh hi there 👋
It’s nice to meet you.

Sign up to receive awesome content in your inbox.

We don’t spam! Read our privacy policy for more info.

Latest News

Fort Worth announces plans to purchase Pier 1 Building for City Hall

Plans for a new City Hall for Fort Worth have been knocked around for years, maybe even decades. On Dec. 2, city officials announced...

U.S. Rep. Michael Burgess loses bid for GOP leadership position on key committee

U.S. Rep. Michael Burgess, R-Lewisville, conceded his bid to be the Republican leader on the House Energy and Commerce Committee on Wednesday. “I want to...

Fort Worth’s Redistricting Task Force presents draft recommendations

A City Council-appointed, 11-member Redistricting Task Force that will advise on redistricting issues in Fort Worth presented its draft criteria as part of its...

U.S. Reps. Michael Burgess and Joaquin Castro seek House leadership roles

The fall campaigns may be over, but for two Texans in Congress the elections are continuing into this week. U.S. Reps. Michael Burgess, a Lewisville...

Grand Prairie Deputy Mayor Pro Tem Swafford dies from COVID

City of Grand Prairie Deputy Mayor Pro Tem Jim Swafford died from COVID-19 Tuesday, Dec. 1, 2020, while hospitalized at Methodist Mansfield Medical Center. He...