It has been just revealed the fact that the Fed economists warned about a massive shockwave that is around the corner. Check out the latest reports about this below.
Fed economists reveal shocking warning
A recent warning from the Federal Reserve sheds light on the current state of the US economy.
According to a research note released by two Federal Reserve economists, the number of non-financial firms facing financial distress has reached unprecedented levels.
“The stance of U.S. monetary policy has tightened significantly starting in March 2022. At the same time, the share of non-financial firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s.”
It has been reported that 37% of firms are currently in a state of distress.
Additionally, the Federal Reserve’s economists have determined that their analysis indicates the potential for significant and impending consequences resulting from the sharp interest rate hikes implemented.
It is challenging to determine the exact impact of this policy change, but initial calculations suggest that it may have substantial effects on investment and employment, given the high percentage of struggling firms in comparison to past periods of tightening.
To start with, total investment in our sample of publicly-listed firms accounts for about 60% of aggregate U.S. investment and aggregate investment is one of the most responsive components of GDP to monetary shocks.
The notes continued and said the following:
“There is also evidence that employment for Compustat firms accounts for around one-third of total U.S. non-government employment… With the share of distressed firms currently standing at around 37%, our estimates suggest that the recent policy tightening is likely to have effects on investment, employment, and aggregate activity that are stronger than in most tightening episodes…”
The same notes also stated this:
“The effects in our analysis peak around one or two years after the shock, suggesting that these effects might be most noticeable in 2023 and 2024.”
