Fed's Cook Says Asset Prices at Historic Highs—Risks of Sharp Correction Rising

(Seoul=Yonhap Infomax) Sung Jin Kim – Lisa Cook, a member of the U.S. Federal Reserve Board of Governors, warned that asset prices are at historically elevated levels, increasing the likelihood of a significant correction.

In a speech at Georgetown University on the 20th (local time), Cook stated, "As highlighted in the Fed's Financial Stability Report, our assessment is that valuations across several markets—including equities, corporate bonds, leveraged loans, and housing—are high relative to historical benchmarks."

She added, "At present, my impression is that the probability of a sharp decline in asset prices has increased."

However, Cook emphasized, "Considering the overall resilience of the system, we do not observe the kind of vulnerabilities that were painfully exposed during the Great Recession. Therefore, a potential asset price correction does not appear likely to pose systemic risks to the financial system."

Regarding the recent surge in interest in private credit, Cook identified it as a "potential vulnerability to monitor."

She noted that Fed staff estimate private credit has nearly doubled over the past five years, saying, "Whenever we see credit expanding this rapidly over such a short period, it draws our attention."

Cook further commented, "While private credit does not appear likely to trigger an unexpected credit crunch as seen in the asset-backed commercial paper market in 2008, it is still worth monitoring developments closely."

sjkim@yna.co.kr

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