Press conference exchange between MICHAEL DERBY and Fed Chair Jerome Powell:

user: Yeah. Thanks for taking my question. So as the Fed shifts towards an accelerated taper, I wonder what your read is on financial-stability risks right now. I mean, these periods can be—you know, it seems like the taper process has gone fairly smooth so far. But, you know, what do you see in terms of stability risks? Are there any parts of the financial sector that concern you right now? And are there any significant systemic issues that are on your radar, you know, maybe from the cryptocurrency sector or something like that?

assistant: You know, we have—we have had now for a decade and more a four-part financial stability framework that we use so we can—we can hold ourselves to the same framework and, you know, not just treat each event individually. And there are four key areas: asset valuations, debt owed by households and businesses, funding risk, and leverage among financial institutions. So I would say asset valuations—I’m going to go really superficially here, but asset valuations are somewhat elevated, I would say. Debt owed by businesses, you know, and households—households are in very strong financial shape. Businesses actually have a lot of debt, but their default rates are very, very low. But, nonetheless, it’s something we’re watching. Funding risk is, by and large, low among, among financial institutions. But we do see money market funds as a vulnerability and, and, you know, would applaud the SEC’s action this week. Leverage among financial institutions is low, in the sense that their capital is high. So, overall, you know, financial stability, that’s how—I wouldn’t make an overall characteristic, but we break it down into those pieces. In terms of the things, you know, that we’re—that we’re looking for, looking at, you know, it’s the—it’s the things we’ve already talked about, to some extent. It’s, it’s the emergence of a new variant that could, you know, that could lead to significant economic—if there were to be a variant, for example, and if that were quite resistant to vaccines, it could have another significant effect on the economy. We don’t see that. We don’t have any basis for thinking that the new variant that we have is that one, but it’s certainly one we’re looking at. I would say, you know, cyber risk, the risk of a successful cyberattack, is, for me, you know, always the most—you know, one that would be very difficult to deal with. I think we know how to deal with bad loans and things like that. I think more—a cyberattack that were to take down a major financial institution or financial market utility would be a really significant financial stability risk that we haven’t actually faced yet. So I could go on with a list of “horribles,” but I think that’s a decent picture of where I would start.

user: How about the cryptocurrency issues? Anything that worries you there that’s going on in there in terms of—you know, obviously a lot’s happening in that sector. Does that concern you at all?

assistant: You know, I think the concerns there are not so much current financial-stability concerns. I, of course, would support the, the views expressed in the President’s Working Group report on stablecoins. Stablecoins can certainly be a useful, efficient, consumer-serving, part of the financial system, if they’re properly regulated. And, right now, they aren’t. And, and they have the potential to scale up, particularly if they were to be, you know, associated with one of the very large tech networks that exist and you could have a payment network that was immediately systemically important—close to immediately systemically important that didn’t have appropriate regulation and protections. The public relies on the government—and on the Fed, in particular—to make sure that the payment system is safe and reliable, as well as the dollar and—you know, to provide a safe and reliable trusted currency. So—but I do think those are longer term. In terms of, you know, the more—the cryptocurrencies, you know, that are really speculative assets, I don’t see them as a financial-stability concern at the moment. I do think they are risky, they’re not backed by anything, and I think there’s big consumer—issues for consumers who may or may not understand what they’re getting. And there’s certainly developments in the—in the markets that are worth following, which are really not in our jurisdiction, but things like, you know, the leverage that’s built into and those sorts of things is certainly worth, worth watching.