Mon. Feb 26th, 2024
Despite a Strong Economy, Corporate Borrowers Are Feeling the Pressure

During the Open Streets program on December 18, 2022, people strolled along Fifth Avenue in New York City. Despite the strong US economy, some corporate borrowers are struggling with high debt burdens and slow recovery from the COVID-19 pandemic, according to Apollo Global Management co-president Jim Zelter.

Zelter stated that while there have been signs of challenge and weakness, there has also been a significant amount of private equity and financing activity over the past five to seven years. This activity has led to borrowers facing “stray challenges around the edges,” he said. The corporate default rate reached 5% at the end of last year, despite equity market surges of over 20%. However, Zelter warned of a “hardening of economic conditions” taking hold.

The Federal Reserve’s rate-cutting trajectory was addressed by Zelter, who noted the return of the “Fed put” and the central bank’s ability to combat volatility with existing tools. He pointed out that the Fed pushed back its timelines for rate cuts, with many experts and analysts pinning their hopes on the first rate cut happening in May.

Strong economic indicators have been released recently, such as a 3.3% GDP surge in the fourth quarter of last year and a lower-than-expected unemployment rate of 3.7%. These indicators have created a conundrum for investors, as strong data pushes back expectations for rate cuts in the near-term. Additionally, January’s consumer price index data showed an annualized inflation rate of 3.1%, slightly lower than December’s 3.4%.

By Editor

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