① S&P Global said that the number of corporate bankruptcies in April reached the highest level in a year; ② as expectations for interest rate cuts from the Federal Reserve became bleak, burdened companies could only recognize export markets; ③ S&P Global said that the three industries with the most bankruptcies in that month were non-essential consumer goods, healthcare, and industry.
In recent months, the number of bankruptcies of US companies has surged due to the market's growing lack of confidence that the Federal Reserve will take quick action to cut interest rates.
According to data from S&P Global (S&P Global), April of this year was the month with the highest number of bankruptcies in a year, with 66 companies filing for bankruptcy. That's an 88% increase from the 35 applications in January.
Expectations that the Federal Reserve might lower the federal funds rate have been questioned, which is one of the reasons for the rise in the number of corporate bankruptcies. Since July of last year, the Federal Reserve's federal funds rate has remained between 5.25% and 5.50%. Although people had high expectations at the beginning of 2024 that the easing policy would start as early as March next year, strong economic and inflation data since then delayed expectations until December.
S&P Global said that for many companies that are burdened with high interest rates, this means giving up. After all, hawkish policies have been the main force eroding balance sheets last year, and the survival of businesses depended on lower borrowing costs.
However, last month's stubborn inflation and slowing GDP data made it seem unlikely that the Federal Reserve would cut interest rates in the short term. According to S&P Global, the three industries that went bankrupt the most that month were non-essential consumer goods, healthcare, and industry.
Although concerns about stagnant growth have subsided after the April employment report was weaker than expected, Fed officials continued to hint that it is still necessary to reduce inflation before interest rates are cut.
Boston Federal Reserve Chairman Susan Collins said on Wednesday that it will take longer than previously thought to reach the 2% inflation target, which also means that interest rates will need to stay at current levels longer.
She said, “There hasn't been much progress in fighting inflation in 2024, and recent data makes me believe it will take more time than previously anticipated. The recent unexpected rise in economic activity and inflation suggests that policies may need to be maintained at current levels until we have greater confidence that inflation will continue to move towards 2%.”
Minneapolis Federal Reserve Chairman Kashkari previously warned that current interest rates may not be enough to restore inflation to the target level of 2%. He said that policymakers are most likely to keep interest rates unchanged for a longer period of time; if inflation becomes entrenched, they may raise interest rates if necessary; they need to see multiple positive inflation data to help the Federal Reserve start cutting interest rates.
However, analysts warned that the longer monetary policy remains unchanged, the greater the risk of economic problems.
Francis Donald, chief economist at Manulife Financial Investment Management, said earlier, “Now that we have returned to an environment where interest rates may not be cut in the short term, we actually have to increase the possibility of bad things happening.”
Editor/Jeffrey