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Here is a brief summary of what is of concern to domestic and international policymakers, academics, community groups, and others. We might call these “known risks.”

Persistent inflation and monetary tightening

• Persistent or reaccelerating inflationary pressures
• Resilient economic outlook leading to further monetary policy tightening
• Volatile market conditions
• Entrenched expectations of higher inflation leading to higher realized inflation leading to even more restrictive monetary policy
• Induces and even exacerbates recession

Commercial real estate

• Potential trigger for systemic stress
• Higher interest rates
• Declining property prices
• Structural shifts in demand for office space may prompt large realized losses
• Small and regional domestic bank vulnerability
• Tighter bank lending conditions

Reemergence of banking-sector stress

• Renewed deposit outflows
• Uninsured deposits
• Losses on CRE exposures
• Market liquidity strains and volatility
• Vulnerabilities among highly levered NBFIs

Weakness in the Chinese economy and financial sector

• Capital flight
• Stronger U.S. dollar
• Downward pressure on Chinese assets and other Asian markets
• Alongside weakness in Europe, increased likelihood of a global recession
• Increased foreign exchange market volatility
• Implementation of capital controls

Fiscal debt sustainability

• Treasury market volatility
• Treasury market liquidity strain
• Higher long-term interest rates and bond term premia
• Increases in sovereign bond issuance

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