Fed's Stress Test: Unemployment Rate in the U.S. May Rise to 10%

Stress Tests of the U.S. Federal Reserve

The U.S. Federal Reserve (Fed) has completed hypothetical scenarios for its stress tests to evaluate how large banks would perform in the event of a severe recession. This year's tests are expected to delve deeper into the economic vulnerabilities in the country.

Impacts on Corporate Debt and Real Estate Markets

According to the Fed's announcement, this year 32 banks will be subjected to scenarios of increased stress in the commercial and residential real estate markets and corporate debt markets. The scenarios are similar to those proposed last October and aim to measure the resilience of banks.

Unemployment and Market Volatility

The simulations suggest that the unemployment rate in the U.S. could increase by about 5.5 percentage points to 10%. This situation is seen as a reflection of the contraction in economic activity and the collapse in consumer confidence.

Market Volatility and Asset Prices

The rise in unemployment is expected to coincide with severe market volatility, widening corporate bond yield spreads, and significant declines in various asset prices. Specifically, residential prices are anticipated to drop by approximately 30%, while commercial real estate prices are expected to fall by 39%. This is interpreted as an indicator of the pressure on the economic stability of real estate.

Capital Buffers for the Future

The Fed announced that the current stress capital buffer requirements will be maintained until 2027. This aims to ensure banks remain more resilient against market conditions.