We had seen some notable volatility in short-term funding markets, including some spikes in repo rates in 2019, but overall vulnerabilities stemming from liquidity and maturity mismatches in the financial sector still appeared low—especially so at large banks, which had substantially reduced their reliance on short-term wholesale funding from pre-crisis levels.
In late 2019, market participants were telling us that the most salient risks to the U.S. economy were from trade frictions, the challenges facing monetary policy given the proximity of interest rates to their effective lower bound, and market liquidity.1 Then the COVID event unfolded.