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The Fed has warned that China’s ailing economy could be a threat to the US economy

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The Federal Reserve warned Monday that China’s real estate crisis is “putting the US economy at risk”, pointing to high-debt companies. Evergrande as a potential source of global transmission.

“Given China’s economic growth and economic regulation and strong trade ties with other countries, China’s economic woes could disrupt global economic markets due to the crisis, jeopardize global economic growth, and affect the United States,” the Fed warned. in his annual Financial Stability Report.

At the doorstep, the Fed also warned that a “sharp rise” in interest rates could lead to a “significant” improvement in risk factors, including reducing the need for housing that could lead to lower prices. Jobs and businesses may also hit if the cost of rent has gone up in business.

The Central Bank of the United States has stated that it is concerned about China because “business and local debt is still high; the strength of the financial sector is great, especially in small and medium-sized banks; and spatial calculations have been stretched ”.

“In the current context, over-regulation of powerful institutions could force debt-laden corporations, especially in real estate companies, as evidenced by recent concerns with China Evergrande Group,” it said.

The Fed said the Chinese economy could be in jeopardy if there were “financial crisis, rapid inflation, or reduced risk for money launderers”.

The central bank’s warning came almost two months after Jay Powell, the Fed’s chairman, said Evergrande things like “special” in China. Speaking at a press conference, Powell said he had not seen much “direct attention to the United States” but was concerned that the crisis could have a significant impact on the global economy and the confidence of investors.

In a report, the central bank warned that the more developed countries with higher debt could pose a threat to economic stability, particularly in the event of “sudden and sharp” economic growth. This has come down to history after Covid-19 disease problems due to the actions of central banks and other policy makers around the world.

“Increased economic growth, either due to rising government yields or global risk crises, could lead to higher repayment rates for EME regulators and businesses, triggering inflation, and disrupting EMEs,” Fed said in a report. lake.

“Extreme and ongoing pressures” could have far-reaching economic consequences for the US, the Fed said, adding that businesses with “strong ties” to high-risk countries were at risk.

“There was a sense of connection [in the report], “said Padhraic Garvey, American chief research officer at ING.

In a special section of the report, the Fed also analyzed “the recent instability of the so-called meme stocks”. Meanwhile, it said “economic stability of the current situation has diminished” while trade instability has decreased, but it should be “continuously monitored”.

The Fed said that the reasons for concern include the high level of investment for small investors and that this could leave them with a “risk of major fluctuations in stock prices”, especially when many market participants have access to trading opportunities.

The central bank also said it was concerned that interactions between social media and marketers “could be difficult to explain” and that “risk-taking mechanisms for financial institutions could not be considered increasing”.

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