U.S. financial regulators said Wednesday that the potential for an increasing federal government debt burden could put long-term financial stability in jeopardy.
In its annual report, the Financial Stability Oversight Council, chaired by Treasury Secretary Steven Mnuchin, noted that U.S. federal government debt held by the public grew to 15.8 trillion U.S. dollars as of October 2018, accounting for 76 percent of gross domestic product (GDP).
The public debt-to-GDP ratio has been "relatively stable" since 2014, but the Congressional Budget Office projects the ratio to "grow sharply" in the next decade, said the council, a group of senior officials including the heads of the Federal Reserve and the Securities and Exchange Commission.
Achieving long-term "sustainability" of the national budget is important to maintain global market confidence in U.S. Treasury securities and the financial stability of the United States, the council said.
Foreign holdings of U.S. treasury securities in October totaled 6.1996 trillion dollars, down by 25.6 billion from the previous month, reaching the lowest level since May.
The U.S. federal budget deficit is expected to reach 1.085 trillion dollars for the fiscal year that began on Oct. 1, the highest since 2012, according to earlier data from the department.
The council's annual reports describe significant financial market and regulatory developments, potential emerging threats to U.S. financial stability, and recommendations to promote U.S. financial stability.
Overall, risks to U.S. financial stability remain "moderate," though they have evolved since the last annual report, the council said, adding that financial stability risks outside the country appear to have increased, especially the potential for a "disorderly" Brexit.
In the report, the council also suggested managing vulnerabilities amid "prolonged credit expansion," among other things.
"According to certain metrics, nonfinancial corporate debt and leverage have reached elevated levels," the report said. "There are some indications that valuations may be elevated in key U.S. financial markets, including equities, corporate debt, and some commercial and residential real estate."
The council recommends that agencies continue to monitor levels of nonfinancial business leverage, trends in asset valuations, and potential implications for the entities they regulate in order to assess and reinforce their ability to manage severe, simultaneous losses in those markets. Enditem
