WASHINGTON (Reuters) – The risks of coming business failures “remain considerable” in the United States even as the economy emerges from the coronavirus pandemic, the Federal Reserve said on Friday in its semi-annual monetary policy report to Congress.
Business borrowing “now stands near historic highs,” the U.S. central bank said in the report. Even though large cash balances, low interest rates, and renewed economic growth may dampen problems in the near term, “insolvency risks at small and medium-sized firms, as well as at larger firms, remain considerable.”
While banks and household balance sheets remain in reasonable shape, the comment on business debt highlights the possibility that the post-pandemic recovery may suffer as companies work through the overhang of loans taken on to try to get through a historically trying year.
Fed Chair Jerome Powell will present the report in hearings before the U.S. Senate Banking Committee on Tuesday and the U.S. House of Representatives Financial Services Committee on Wednesday. He will field questions from lawmakers after presenting his own summary of where the economy stands.
It will be Powell’s first appearance on Capitol Hill since Democrats won the White House and control of both chambers of Congress.
He will speak as the economy enters a transition from the coronavirus crisis that has dominated U.S. life and livelihoods for the past year to an accelerated reopening and recovery as the impact of new vaccines is more fully felt.
The Fed has pledged to keep its current policy of low interest rates and $120 billion in monthly bond purchases intact until the recovery is more complete. That may be tested in coming months if, as expected, the reopened economy begins to generate rising inflation.
(Reporting by Howard Schneider; Editing by Paul Simao)
