US Federal Reserve warns of financial vulnerabilities amid pandemic

The US Federal Reserve (warned of significant vulnerabilities in the financial sector as the COVID-19 pandemic continues to sweep the nation.

The financial system "amplified the shock" associated with COVID-19 and financial sector vulnerabilities are "likely to be significant" in the near term, the Fed said in its semi-annual financial stability report on Friday.

"The strains on household and business balance sheets from the economic and financial shocks since March will likely create fragilities that last for some time," Xinhua news agency quoted the report as saying, adding the banking sector and other financial institutions "may experience strains" as a result.

The report also warned that asset prices "remain vulnerable to significant price declines" should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains re-emerge.

"Forceful early interventions have been effective in resolving liquidity stresses, but we will be monitoring closely for solvency stresses among highly leveraged business borrowers, which could increase the longer the COVID-19 pandemic persists," Fed Governor Lael Brainard said on Friday in a statement.

In the near term, risks associated with the course of COVID-19 and its effect on the US and global economies "remain high", according to the report.

Earlier this week, Fed Chairman Jerome Powell had said the COVID-19 crisis raises "long-term concerns", warning that a prolonged recession and weak recovery could lead to an extended period of low productivity growth and stagnant incomes.

"The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II," Powell said.

The central bank chief said while the economic response has been "both timely and appropriately large", it may not be the final chapter, given that the path ahead is both "highly uncertain" and subject to "significant downside risks".