A sharp decline in financial markets and virtual currencies? This is officially the biggest concern for Alvaro Santos Pereira of the European Central Bank.
summary
- ECB warns of financial instability: Álvaro Santos Pereira highlights risks from potential market correction.
- Pereira stressed the need for the central bank to remain flexible and leave room to cut interest rates in the event of further shocks to the economy.
- Although the market has strengthened after this week’s crypto selloff, with hints that interest rates may be cut, the outlook remains uncertain.
According to Bloomberg, the head of the Bank of Portugal stressed that central banks need to have a “crisis response toolkit” ready in case of further shocks. In other words, don’t throw away your interest rate cut scissors just yet.
This comes after a week of financial turmoil that saw stock prices plummet (although they recovered on Friday), U.S. Treasury yields plummeted, and crypto assets struggled along with other risk assets. The market stabilized after Federal Reserve officials dangled the possibility of rate cuts like a shiny carrot.
Pereira noted that the “overvaluation” of U.S. stocks and cryptocurrencies has become a ticking time bomb, especially amid trade wars and geopolitical uncertainty.
With the ECB’s financial stability review looming next week, Pereira’s warning is a reminder that the situation could become volatile and that the financial “emergency brake” may need to be applied sooner than expected.
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