Fed Says Persistent Inflation Is Seen as Top Financial Risk (1)

Higher-than-expected interest rates amid persistent inflation are perceived as the biggest threat to financial stability among market participants and observers, according to the Federal Reserve.

“The risk of persistent inflationary pressures leading to a more restrictive than expected monetary policy stance remained the most frequently cited risk,” the Fed said in its semiannual Financial Stability Report published Friday.

The report includes results from a survey of financial-market contacts as well as the central bank’s assessment of risks in four main areas, including asset valuations, borrowing by businesses and households, leverage in the financial sector and funding risks.

The banking ...