29 June 2023
Researchers at the US central bank have issued a stark warning about the growing number of distressed American companies, exacerbating the consequences of the Federal Reserve’s battle against inflation. The surge in borrowing costs poses a significant risk of widespread corporate collapses. The share of nonfinancial firms in financial distress has reached a level higher than previous tightening periods, according to the researchers. The Fed’s consecutive interest rate hikes aimed at addressing high inflation could severely impact business investment, employment, and overall economic activity. The economists anticipate a potential scenario where debt-laden companies curtail spending on new ventures, hiring, and production. Currently, approximately 37% of firms are in distress, signaling a concerning possibility of over one-third of companies facing default due to tightening monetary policies in the coming months.