Economics
Massive U.S. Debts Could ‘Trap’ Powell as Fed Fights Inflation
- Aggressive Fed hikes may risk market volatility, credit crunch
- Debt overhang could also limit how high fed can raise rates
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The U.S. went on a borrowing binge last year and the hangover could make it harder for the Federal Reserve to fight inflation without crashing the economy.
Corporate debt has surged $1.3 trillion since the start of 2020 as borrowers took advantage of emergency Fed action as the pandemic spread, slashing interest rates and backstopping financial markets to keep credit flowing. More debt held by more companies suggests potential risks as borrowing costs rise from currently low levels.