Number of U.S. Distressed Firms Stands at 37%, Federal Reserve Economists Raise Concerns

Rate hikes have increased borrowing costs, causing a significant strain on businesses, particularly those already burdened with debt.

What’s going on:

Federal Reserve economists have raised concerns about the historically high percentage of distressed companies in the U.S., which currently stands at around 37%, according to Business Insider. This distress is largely due to the Fed’s interest rate hikes that were implemented to combat inflation. These hikes have increased borrowing costs, causing a strain on U.S. businesses, particularly those already burdened with debt.

Why it matters:

Understanding the Fed’s actions helps workers anticipate potential changes in the job market and make informed decisions about their careers and financial planning. Monetary policy and interest rates directly influence economic conditions, which in turn affects job availability, wage growth, and overall workforce stability. The high number of troubled U.S. firms makes Fed economists believe that the rate hikes could result in some of the most devastating effects when compared to any of the previous tightening cycles that took place in the past four decades, according to Business Insider.

Companies grappling with financial distress are less likely to invest in new equipment or facilities, hire more staff, or increase production. This could lead to job losses and a slowdown in economic growth, directly affecting workers.

How it’ll impact the future:

The full extent of the damage caused by these rate hikes will become clearer over the next 18 months. However, the prospect of further hikes has sparked fears that the Fed might inadvertently push the economy into a possible recession. This could lead to a significant contraction in the job market, affecting the labor market and the workforce.

If companies continue to struggle financially, they may be forced to lay off employees or halt hiring, leading to higher unemployment rates. This could also discourage people from entering certain sectors that are heavily impacted, leading to a potential skills gap in the future.