iM Securities Report
"Fed Should Prioritize Job Market Stability"
On October 23, iM Securities analyzed that, in light of the recent spate of bad loan issues on Wall Street, "there is an urgent need for a preemptive response from the US Federal Reserve (Fed), as these problems could lead to a tightening of the short-term funding market."
Park Sanghyun, a researcher at iM Securities, explained, "The recent bankruptcy filings by subprime auto loan companies such as Tricolor and PrimaLend Capital are heightening tension in the financial markets."
Park noted, "Although the scale of their bad loans is not yet large and major banks have limited exposure, which lowers the risk of systemic contagion, there could still be pressure on short-term liquidity flows." He added, "The sharp drop in gold prices and the correction in the prices of cryptocurrencies such as Bitcoin appear to be related to the overall liquidity in the market. The recent increase in volatility of the Secured Overnight Financing Rate (SOFR), which reflects the tightness in the short-term funding market, is a signal of temporary instability in the short-term money market."
He continued, "As of the end of the second quarter of 2024, outstanding auto loans in the US stood at 1.66 trillion dollars, a 2.26-fold surge compared to the end of 2011. Similar to the past subprime mortgage crisis, there is a possibility that the securitization process of auto loans could expose the market to additional bad loan risks."
Against this backdrop, the importance of the Fed's monetary policy is growing. To prevent the spread of bad loan risks, it is necessary to respond preemptively to liquidity shortages in the market through swift interest rate cuts and an early halt to quantitative tightening. Park emphasized, "In particular, policy priority should be given, at least for the time being, to stabilizing the job market, as it has a direct impact on delinquency rates."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
