Federal Reserve FEDS Notes·Oct 9, 2026, 1:15 PM ET

Beyond the Current Account: U.S. Financial Flows and Global Imbalances

Global policy discussions on imbalances now include the financial account alongside traditional current account balances to better understand financing, risks, and adjustments.
The United States holds the largest current account deficit and the largest negative net international investment position (NIIP) among OECD economies in dollar terms.
Net financial inflows financing U.S. current account deficits are small relative to the much larger gross financial inflows and outflows that co-move closely due to financial globalization.
Gross financial flows into the U.S. are dominated by volatile portfolio and banking investments, whereas U.S. outflows rely more heavily on foreign direct investment (FDI).
Financing sources for U.S. deficits have shifted from foreign official purchases of Treasuries in the 1990s and 2000s to net private capital flows in recent decades.
Recent deterioration in the U.S. NIIP is driven primarily by valuation effects from U.S. equity market outperformance rather than cumulative current account deficits.
The Bureau of Economic Analysis revised its valuation methodology for direct investment liabilities in June 2026, raising the net FDI position by $5.6 trillion.
Europe remains the primary source of FDI into the U.S., while China's investment is concentrated in Treasuries with minimal holdings in equity or FDI.
There is essentially no correlation between bilateral trade balances and bilateral financial account balances across U.S. trading partners.
Policies targeting specific bilateral trade deficits may not reduce the aggregate U.S. external imbalance or the foreign financing associated with it.