WASHINGTON (Reuters) – The risks of ongoing trade failures in the United States “remain considerable” even as the economy emerges from the coronavirus pandemic, the Federal Reserve said Friday in its six-monthly monetary policy report to Congress .
The corporate loan “is now close to record highs,” the US central bank said in the report. While large cash balances, low interest rates and renewed economic growth can dampen short-term problems, “insolvency risks for small and medium-sized businesses as well as for some large companies , remain considerable ”.
Fed Chairman 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.
After presenting his own summary of where the economy is, he will raise questions from lawmakers that will likely focus on the amount of aid the economy needs from the federal government to get to the point where ongoing COVID- vaccines 19 make it safe to resume normal trade.
The Biden administration is pushing for a $ 1.9 trillion stimulus plan that has already removed a major hurdle in the Senate, money exceeding the nearly $ 900 billion approved late last year and the roughly 3 trillion dollars allocated at the beginning of the crisis in 2020.
These federal payments, including one-time checks on households, rising unemployment insurance, and small business lending, led to faster-than-expected economic growth and lower-than-expected financial strain. between families and banks that hold their mortgages and credit card loans.
But while bank and family balance sheets remain reasonably stable, the Fed’s benchmark on corporate debt highlights the possible economic downturn that will still come after a historically difficult year.
Along with business failures, the report noted how changes in the economy that are still underway could, for example, cut the already highly valued commercial real estate market and lead to “sharp falls” in prices, once potential for investors or lenders. related to these properties.
The report also noted that loans and expenditures used in some countries to combat the pandemic had made their financial systems “more vulnerable” than before, and the situation may worsen. Stress in some emerging market countries, the report warned, could overflow “and produce additional tensions for the U.S. financial system and economic activity.”
Next week will be Powell’s first appearance on Capitol Hill since Democrats won the White House and control of both houses of Congress.
The Fed is committed to keeping its current policy of low interest rates and $ 120 billion in monthly bond purchases intact until the recovery is more complete. This could be tested in the coming months if, as expected, the reopened US economy begins to generate rising inflation.
Reports by Howard Schneider; Edited by Paul Simao