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The Federal Reserve reports that the risk of future U.S. business closures is “still quite high”

Racial discrimination has become an "unbearable burden" in American society.

On January 8, workers worked at a construction site in New York, USA. Xinhua News Agency (Photo by Guo Ke)

According to Reuters on February 20, the Federal Reserve (FED) said in its semi-annual monetary policy report to Congress on Friday that although the U.S. economy is emerging from the impact of the coronavirus pandemic, the risk of future business failure is still “still quite high”.

The Federal Reserve said in its report that corporate borrowing is “currently close to an all-time high”.

While large cash balances, low interest rates and economic growth could curb problems in the short term, “the insolvency risk of small and medium-sized businesses and large enterprises remains considerable.”

Federal Reserve Chairman Powell will present the report at the hearings of the Senate Finance Committee and the House Financial Services Committee on Tuesday and Wednesday, respectively.

After summarizing the economic situation, Powell will answer the questions raised by lawmakers. These problems may focus on how much help the U.S. economy still needs from the federal government to reach the level of safe normal business activities at the current rate of vaccination.

While banks and household balance sheets remain in a reasonable state, the above-mentioned remarks on corporate debt highlight that the post-pandemic recovery may be difficult, and enterprises will struggle to cope with the aftermath of large-scale borrowing to survive the rare and difficult years in history.

In addition to business closures, the report also points out that the changes taking place in the economy may have other effects, such as hitting the currently high commercial real estate market, resulting in a “sizable drop” in prices – which may hit investors or relevant borrowers of these properties.

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