WASHINGTON—The potential for U.S. public health to worsen as the Covid-19 pandemic continues is one of the greatest near-term risks to the financial system, the Federal Reserve said, while noting that asset prices are susceptible to large declines should investor sentiment shift.
Any deterioration in the public-health situation could slow the recent economic recovery, particularly if widespread business closures returned and supply chains were further disrupted, the Fed said. The number of new Covid-19 cases has fallen in recent months, but a resurgence this summer, tied to the Delta variant, coincided with a slowdown in hiring and economic growth.