The Federal Reserve issued its first financial stability report late last month. Among issues such as trade tensions and elevated valuations, the report focused on corporate debt as a potential area of risk in the economy.
The report, published Nov. 28, concluded that, “Among businesses, debt levels are high, and there are signs of deteriorating credit standards. In addition, recently, debt has been growing fastest at firms with weaker earnings and higher leverage.”
The report also spoke about the risk that leveraged hedge funds pose, stating that such funds have increased their leverage by as much as a third over the past two years.
Chairman Jerome Powell, speaking on the subject at the Economic Club of New York, said that he believed the core of the financial system would weather any downturn, though investors in securitized loans and debt-laden businesses might not be as lucky. This shows an increased focus on leverage in the financial system.