First on “Making Money,” FHN Financial chief economist Chris Low and Constance Hunter, senior advisor at MacroPolicy Perspectives, debate whether inflation or the economy will slow first.
The US is experiencing a “historic surge” in corporate bankruptcies as debt-laden companies struggle to adapt to a new era of high interest rates.
New figures announced S&P Global Intelligence It was revealed that 75 companies filed for bankruptcy in June, the highest number recorded in a single month since the peak of the economic downturn in early 2020. COVID-19 pandemicThis brings the number of bankruptcies so far this year to 346, a significant increase from the same level over the past 13 years.
The previous record for a half-year was in 2010, when 437 companies filed for bankruptcy from January to June.
The S&P report cited high interest rates, supply chain problems and slowing consumer spending as reasons for this year’s surge in bankruptcies.
Rising interest rates could cost US companies $380 billion in ‘slow-moving crisis’
A Red Lobster restaurant in Alexandria, Virginia, on Friday, June 7, 2024. Red Lobster filed for bankruptcy on May 19, 2024. (Photographer: Ting Sheng/Bloomberg via Getty Images/Getty Images)
of Federal Reserve India’s central bank is raising interest rates sharply in 2022 and 2023 to the highest level since 2001 to tamp down high inflation, ending more than a decade of ultra-loose monetary policy. Officials are struggling with when to ease the brakes amid signs that economic growth is slowing and inflation is falling again.
Most investors now expect the Fed to start cutting rates in September or November, with only one or two cuts this year — a dramatic change from earlier this year, when they expected as many as six rate cuts to begin as early as March.
A silver lining to rising interest rates: Savings account rates
Still, interest rates are likely to remain high.
Some economists are calling for the U.S. central bank to cut interest rates sooner, citing concerns that high interest rates pose risks to the financial system.
Electric vehicle maker Fisker’s headquarters in Manhattan Beach, California, on May 17, 2024. The company is reportedly closing its Manhattan Beach headquarters to avoid bankruptcy. (Photo by Jay L. Clendenin/Getty Images/Getty Images)
“While the economy has weathered the Fed’s high-interest-rate strategy for long periods of time admirably, there is a growing threat that continued pressure could expose fault lines in the financial system,” Moody’s chief economist Mark Zandi wrote in a recent Washington Post op-ed. “As last year’s banking crisis showed, the relentless pressure of high interest rates could cause parts of the financial system to collapse in ways that are difficult to predict or control.”
A noticeable increase in insolvencies began in April as businesses continued to “feel the burden of high interest rates” and many realized that interest rates were likely to remain at peak levels for some time.
Click here to get FOX Business on the go
“One of the reasons for the increase in applications is likely that expectations for lower interest rates are fading as companies that were hopeful about lower interest rates at the beginning of the year are coming to terms with the reality that interest rates will remain high for a long period of time,” S&P said at the time.
Notable bankruptcies in June included electric car maker Fisker; DVD rental chain Redbox.
