On November 7, the Fed released its semi-annual Financial Stability Report, assessing U.S. financial system vulnerabilities as of late October. The report found that demand for higher-risk assets returned after market declines earlier this year, and asset valuations remained elevated relative to historical norms. Business and household debt levels were stable at 20-year lows, with most household debt held by borrowers with strong credit scores. The banking sector was described as “sound and resilient,” with capital ratios at historically high levels, though the Fed noted some banks continued to face significant fair value losses on fixed-rate assets.

The report highlighted that leverage in hedge funds and life insurers was notably high, while funding risks across the system remained moderate. In its survey of market participants, the Fed reported that policy uncertainty — including concerns about trade, central bank independence, and economic data — was the most frequently cited risk to financial stability. Other prominent risks identified included persistent inflation, higher long-term interest rates, geopolitical tensions, and the potential for sharp declines in asset prices, possibly linked to a shift in sentiment around AI.