The Office of Financial Research (OFR) has reported elevated threats to U.S. financial stability, concluding that the risks have increased since the previous year.
In its report, the OFR identified key risks currently impacting financial stability in the United States as inflation, ongoing geopolitical risks, and various global conflicts. "Persistent and emerging risks are contributing to uncertainty within our financial system," said James Martin, Acting Director of the Office of Financial Research. He further stated, "Through this year’s Annual Report to Congress, the OFR demonstrates commitment to promoting financial stability through our work in monitoring and analyzing risks, performing essential research, and shining a light in the dark corners of our financial system. We hope the analysis provided in this report, as well as the research and monitoring tools made available by the OFR, aid policymakers and others responding to financial stability risks."
According to the report by OFR, ongoing conflict between Russia and Ukraine has disrupted supply chains and introduced uncertainty into many European economies. Some European economies have begun to falter as consumer spending declines alongside stagnated economic growth. The report also highlighted high risks associated with digital assets; it noted that organizations affected by ransomware rose from 79% to 87% in 2023. This marked 2023 as having the highest proportion of data breaches in the financial services industry since 2018.
The report further revealed that inflation remains a concern for the Federal Reserve with its target persistently above 2%. Consumer Price Index (CPI) inflation rose by 3.7%, while core CPI inflation increased by 4.1% over the year. High prices have impacted household balance sheets leading to reduced consumer spending habits which in turn constricts aggregate demand. Food, services, and shelter prices were identified as main drivers of inflation. Despite strong retail consumption growth earlier on, it is beginning to slow down due to households' excess savings diminishing and personal savings dipping below the pre-pandemic trend due to the increase in prices.
