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 Seventy-five companies filed for bankruptcy in June, the most in a single month since the peak of the COVID-19 pandemic in early 2020. This brings the number of bankruptcies so far this year to 346, a significant increase compared to 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.
The Federal Reserve is raising interest rates sharply in 2022 and 2023 to their highest levels since 2001 to tamp down high inflation, ending more than a decade of ultra-loose monetary policy. Officials are struggling with when to ease up on 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.
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.
“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 bankruptcies began in April as businesses “continued to feel the strain of high interest rates” and many realized that interest rates were likely to remain at peak levels for some time.
“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 and Chicken Soup for the Soul, which owns the DVD rental chain Redbox.
