The US central bank said in the report that corporate debt “is now near its all-time high”.
While large cash balances, low interest rates, and renewed economic growth may alleviate short-term problems, “the risk of bankruptcy of small and medium-sized firms, as well as some large firms, remains substantial.”
Federal Reserve Chairman Jerome Powell will present the report at hearings before the Senate Banking Committee on Tuesday and before the House Financial Services Committee on Wednesday.
Powell will answer lawmakers’ questions after reporting his state of the economy summary. It will be Powell’s first appearance on Capitol Hill since the Democrats won the White House and seized control of both houses of Congress.
The Biden administration is pushing for a $ 1.9 trillion stimulus plan that has already removed a major hurdle in the Senate, money in addition to the nearly $ 900 billion approved late last year and nearly $ 3 trillion since the start of the crisis in 2020.
Federal payments, which include one-off checks for families, increased unemployment insurance, and small business loans have led to faster-than-expected economic growth and less-than-expected financial pressure among households and banks that maintain your mortgages and credit card loans.
While bank and family balance sheets remain reasonably good, the comment on corporate debt highlights that the post-pandemic recovery could be affected, as companies grapple with excessive lending in an effort to get past a historically difficult year.
In addition to corporate bankruptcies, the report indicated that changes in the economy that are still underway could cause “sharp drops” in asset prices, which could be a blow to the investors or lenders involved. (Co-reporting by Howard Schneider. Editing in Spanish by Janis Huampaciano)
“Future teen idol. Hardcore twitter trailblazer. Infuriatingly humble travel evangelist.”