(Reuters) – Federal Reserve Governor Lisa Cook on Wednesday called out a number of international risks, including persistent inflationary pressures abroad and a further economic slowdown in China, that she said could threaten global financial stability.
“We must remain vigilant to potential shocks that could exacerbate vulnerabilities in the global financial system,” Cook said in remarks prepared for delivery at the Central Bank of Ireland.
Much of her speech was a repeat of one on Monday, in which she described a largely resilient financial sector, though subject to some risks including from non-bank financial institutions and from a decline in commercial real estate values, and a largely strong household sector, though with some stresses building among those with lower credit scores.
But in an added section Cook newly delineated several risks from abroad, including the potential for unexpected policy rate increases if inflationary pressures persist, international spillovers should China’s economic slowdown worsen, and the potential for rising tensions in Russia, the Middle East and China to generate risks to global markets.
“More broadly, escalation of geopolitical tensions could lead to lower economic activity and increased fragmentation of global trade flows and financial intermediation, raising financing and production costs and contributing to more sustained supply chain challenges and inflationary pressures,” Cook said.
She did not detail her view of the U.S. economic outlook or comment on the Fed’s policy interest rate, nor did she give a sense of how likely she felt any of those potential risks were to becoming reality.
Still, Cook said, though she feels the financial system is in better shape than it was in the mid-2000s, “We cannot be complacent.”
(Reporting by Ann Saphir; Editing by Leslie Adler)
