WASHINGTON (Reuters) – Risks of corporate bankruptcies “remain considerable” in the United States, even as the economy emerges from the coronavirus pandemic, the Federal Reserve said in its semi-annual monetary policy report to Congress on Friday.
Corporate debt “is now near historic highs,” the US central bank said in the report. While large cash balances, low interest rates and renewed economic growth can alleviate short-term problems, “the risks of insolvency in small and medium-sized enterprises, as well as in large enterprises, remain considerable.” .
Although the balance sheets of banks and households remain in a reasonable position, the commentary on corporate debt highlights the possibility that the post-pandemic recovery may be hampered as companies try to cope with excess loans in an attempt to overcome a historically difficult year.
Fed Chairman Jerome Powell will present the report in hearings before the U.S. Senate Banking Committee on Tuesday and the House of Representatives Financial Services Committee on Wednesday. He will answer questions from lawmakers after presenting his own summary of how the economy has developed.
This will be Powell’s first appearance on Capitol Hill since Democrats conquered the White House and control of both houses of Congress.