It’s the stuff of every business owner’s nightmares: a surge in bankruptcies that feels like 2020 all over again. Debt-ridden companies are crumbling under the pressure of stratospheric interest rates and whoever said ‘what doesn’t kill you makes you stronger’ obviously has never met the Federal Reserve’s monetary policies. The infamous Fed is playing its high-stakes game of inflation roulette, and plenty of businesses are finding themselves in deep trouble.
Just to sprinkle a little more gloom on this already dismal sundae, let’s chat about how the Fed enthusiastically ramped up interest rates in 2022 and 2023 to levels not seen since the early 2000s. The goal? To squash inflation like an overripe tomato. The unintended consequence? A wave of businesses waving the white flag as they declare bankruptcy. They might as well have been asked to survive a reality TV show on Mars without oxygen.
To cut the financial horror short, in June alone, high-profile companies like Fisker (electric vehicle maker) and Chicken Soup for the Soul (yes, the DVD rental chain Redbox owner) couldn’t take it anymore and went belly up. Funny how no one considered passing out a comforting bowl of actual chicken soup at the Fed meetings.
The Fed now has a bit of a conundrum on its hands. Economic growth is stalling, inflation is doing a gentle swan dive, and everyone is watching, waiting to see when the Fed will give in and cut those pesky rates. Most gamblers – excuse me, ‘investors’ – are placing their bets on a rate cut in September or November. By now, they probably have a drinking game based on the Fed’s moves, but that’s another story for another blog.
Some of the Fed’s friends (or are they frenemies?) in the economics world are screaming for earlier rate cuts like a toddler who skipped nap time. Mark Zandi from Moody’s took to the Washington Post to spell out his fear: if high rates continue, we might as well prepare for financial system’s version of mass extinction. Remember last year’s banking crisis? That delightful mess was just the appetizer.
As businesses keel over one by one, the Fed needs to walk the fine line of sound policy and pray to the financial gods they don’t trigger another Great Recession. Each decision, each tweak in the rates, places a metaphorical sword over the neck of the U.S. economy. Choose wisely, dear Fed, because that next rate cut might be the difference between business survival and a comeback of the 2020 financial apocalypse.
If the future stability of the U.S. economy rests on the decisions of the next few months, we might as well start building those doomsday bunkers now. For the businesses hanging on by their fingernails, it’s a grim waiting game. Will the Fed cut the rates, or is it gonna be a long cry of ‘Hold your breaths’ till we’re all blue in the face?
