One of the reasons why unemployment keeps being low and the US economy has not enter into a recession is the fact that corporations took advantage of #zirp to lock in low yield, long maturity debt. As a consequence, the impact of #ratehikes has not been felt yet on corporate balance sheets. In fact, interest expense has gone down 43% from the peak on 2017, and has now broken the historical relationship between fed funds and interest payments. “Higher for longer”, the new fed motto, means that eventually the red line will go up again, like it did on ‘96 or ‘06. On those instances, recessions appeared near interest expense peak, taken up to 2-3 years from the trough. It would appear a recession is still far from today, but perhaps the difference vs history is the speed and magnitude of Fed ratehikes in this cycle.
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