The Rising Tide of Corporate Bankruptcies in the US: The Impact of Stubborn Inflation and High Interest Rates

In April, the US economy showed resilience, but experts warned of a potential recession. Despite this, there was a spike in corporate bankruptcies, the highest in a year, according to S&P Global. This increase is partly due to the decreased expectations of an interest rate cut, causing struggling businesses to give up hope.

Inflation in April coincided with higher yields on junk-rated bonds, contributing to this trend. The rise in bankruptcies is a result of decreased confidence in a rapid interest rate adjustment. S&P Global reported that there were 66 corporate bankruptcies in April, an 88% increase from January.

The anticipation of a Fed rate cut has caused businesses to struggle with high borrowing costs. The expectation of easing monetary policy has been a lifeline for companies with weak finances, and the lack of a rate cut has forced some to file for bankruptcy. Rising costs and interest rates have contributed to this trend, causing bond yields to fluctuate.

The three sectors with the most bankruptcies in April were consumer discretionary, healthcare, and industrials. While concerns of stagflation have decreased since April, the Federal Reserve is still cautious about reducing interest rates due to stubborn inflation. Analysts have warned that maintaining current monetary policy could lead to negative consequences for the economy. Without a change in interest rates, the risk of economic instability increases