A report released by the Federal Reserve on Wednesday warned of impending risks to the U.S. financial system, including geopolitical uncertainty, risky trade tensions and the highest level of American business debt in more than two decades.
According to the report -- its first ever assessing the resilience of the U.S. financial system -- one of the biggest vulnerabilities is excess debt taken on by corporations, which is at a historically high level. Not only are debt levels high, but there are concerns of deteriorating credit standards, on top of weaker earnings and higher leverage.
The Fed also signaled a cautionary note about the potential effects of turmoil abroad, including Brexit and Italy’s new budget proposal, which includes a “wider deficit projection than anticipated.”
Also included in the report is an escalation in trade tensions between the U.S. and China, which central bank policymakers suggested could rattle the economy and lead to investors taking a wait-and-see approach in order to avoid some of the headwinds caused by a tit-for-tat tariff fight.
Wall Street will be watching Fed Chair Jerome Powell’s speech at the New York Economic Club at 12:10 ET on Wednesday, during which he’s expected to address future interest rate hikes amid market volatility that saw tech stocks plunge, with Apple shares leading the way.