$BTC No longer hopeful that the Fed will cut interest rates soon! American companies are beginning to "surrender"

In recent months, the number of corporate bankruptcies has increased as confidence that interest rates will be lowered quickly has shaky.

According to S&P Global data, April was the month with the most corporate bankruptcies in the past year, with 66 companies filing for bankruptcy, an 88% increase from 35 applications in January.

Questions about the Fed's expectation that it may cut the federal funds rate as soon as possible are one of the reasons why so many companies have filed for bankruptcy. Since July last year, the Fed's federal funds rate has remained between 5.25% and 5.50%. Although people had high hopes at the beginning of 2024 that the Fed would start easing policies as early as March, strong economic and inflation data since then have pushed this expectation back to December.

For many companies burdened with high interest rates, this means "surrender." After all, the Fed's hawkish policies are the reason why most companies' assets last year were in a state of decline. The main reason for the deterioration of balance sheets, whose survival depends on lower borrowing costs.

According to one measure, the pace of corporate cost increases did slow in early 2024 when the market expected the Federal Reserve might soon cut interest rates. According to one index, the effective yield on junk-rated corporate bonds fell to 7.40% in March. But that yield then surged to 8.11% last month as stubborn inflation made it look unlikely that the Fed would cut rates soon.

The three sectors with the most bankruptcies that month were consumer discretionary, health care and industrials, according to S&P Global.

Although market concerns about stagflation have faded after a weaker-than-expected U.S. nonfarm payrolls report in April, Fed officials continue to signal that inflation needs to continue to slow before cutting rates.

But some analysts warn that the longer the Fed "stays on its hands," the greater the risk of problems in the economy. Frances Donald, chief economist at Manulife Investment Management, said in April:

"Now that we're back in an environment where we've lost the potential for rate cuts, we actually have to increase the probability of bad things happening."