Industrial Forex: The Fed's interest rate hike lag is about to emerge? Goldman Sachs: High interest rates will impact the job market

Goldman Sachs believes that in the next two years,More than $2 trillion in corporate debt will shake the U.S. economy.

The investment bank said in a report on Sunday,The higher interest expense associated with refinancing corporate debt will result in lower capital expenditures and a reduction of about 5,000 jobs per month in 2024. Assuming interest rates remain at current levels, this could double by 2025, resulting in a reduction of 10,000 jobs per month.

"If interest rates stay high, companies will need to spend a larger proportion of their revenues on higher interest payments because they need to refinance debt at higher rates," says Jan Hatzius of Goldman Sachs. "We found that,For every additional dollar of interest expense, companies reduce their capital expenditures by 10 cents and their labor costs by 20 cents”。

Corporate America has benefited greatly from a period of low interest rates until 2022. According to Bank of America, companies in the S & P 500 have a whopping 76 per cent of their debt mix in long-term fixed debt, much of it at very low interest rates.

But with interest rates remaining high and likely to rise as the Federal Reserve continues to fight inflation,The risk of refinancing will become more apparent, especially in the next two years.

Goldman Sachs estimates that corporate debt maturing over the rest of 2023 will reach $230 billion, $790 billion in 2024 and $1.07 trillion in 2025, or 16% of all corporate debt. According toIndustrial foreign exchangeEconomists say more than $4 trillion of corporate debt will come due between 2026 and 2030.

Those most affected by higher interest rate debt refinancing are unprofitable companies that are more likely to rely on layoffs to balance costs.

"Our estimates suggest that...The decrease in labor costs is roughly half due to a decrease in hiring and half due to a decrease in wage growth"That would mean 50 million fewer jobs per month in 2024 and 10,000 fewer in 2025."

The issue of debt refinancing helps explain why it may take years for the Federal Reserve to raise interest rates sharply in the economy and have an impact on businesses, and may also help explain why a recession has not yet materialized.

"Refinancing needs have been limited since the start of the Fed tightening cycle,This suggests that the impact of rate hikes on economic growth is much more delayed than the average historical impact predicted by our Financial Conditions Index shock model", Hatzius said.