At 3.7 percent, the unemployment rate is at its lowest level in 49 years, and payrolls have been growing well above the pace that is consistent with labor market stabilization. Historically, the few periods when resource utilization has been similarly tight have seen elevated risks of either accelerating inflation or financial imbalances.
Stress tests, typically, assess the resilience of banks to shocks in an extreme adverse scenario as compared to a baseline scenario. It also provides banks’ management with a tool to improve their internal risk managements by identifying the stress points in their operations.