A US Federal Reserve official comments on market volatility

In an official comment from the US Federal Reserve on the recent turmoil in US markets, US Federal Reserve Board of Governors member Lisa Cook confirmed that the volatility experienced in April following US President Donald Trump’s surprise tariff announcement did not reach the level of a “structural imbalance” as occurred during the COVID-19 crisis, but it was an important practical lesson for improving tools for assessing financial stability.

According to CNBC, Cook’s remarks came during the “Women in Macroeconomics” conference in New York. She emphasized that US Treasury bond markets, despite the decline in liquidity, continued to operate regularly, and that private debt markets were not subjected to excessive pressure, even as investors rushed to sell government bonds en masse.

Cook said that what happened was a real-life example of how high asset valuations can become a source of sharp volatility when a sudden shock occurs, noting the importance of having flexible and stable financing channels to absorb such shocks and mitigate their impact. Regarding the actual impact on the real economy, Cook noted that companies and investors expressed concerns during earnings calls and meetings with the Federal Reserve about the potential for slowing growth and rising inflation, which led to market anxiety before these concerns began to subside in mid-April.

However, the picture is not entirely rosy. While she emphasized that the overall conditions of households and businesses are strong, Cook warned that low- and middle-income households remain under financial pressure, and any sudden income shock could lead to higher default rates on personal debt, negatively impacting lenders and threatening the credit cycle.

Regarding the real estate sector, Cook noted the slowdown in home price growth after the sharp rise following the pandemic, but expressed particular concern about the commercial real estate market, where a large portion of loans will need to be refinanced at high interest rates, which could weaken some lenders’ ability to repay.