In this report, we go beyond our initial assessment of key points in the Fed’s latest financial-stability report not only to analyze the systemic risk the Fed now fears, but also the findings it reaches that will guide FSOC and other federal agencies.  Likely reflecting political sensitivities, the Fed’s report does not attempt any prediction about COVID’s economic impact beyond a forecast of significant near-term U.S. dislocation and possible risks from interactions with China, the EU, and other nations also grappling with the pandemic.  Also reflecting a desire not to describe scenarios that might prove self-fulfilling, the report provides no specific guide to financial-system vulnerabilities beyond noting the potential for significant near-term risk and greater challenges if macroeconomic stress persists.  The report also states that approximately $200 billion of higher-risk corporate debt will mature before the end of 2020, threatening CLOs in ways that may amplify COVID’s macroeconomic impact.

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