Interest rates are still sky-high — but companies aren't feeling the squeeze

Businesses haven't found it this easy to borrow cash since 2022, according to a Chicago Fed gauge of financial conditions.

• The Federal Reserve has not started cutting interest rates with inflation still north of 2%.
• Yet companies haven't found it this easy to borrow cash since 2022, a Chicago Fed index shows.
• Stocks have also carried on racking up gains this year despite higher rates.

Companies haven't found it this easy to borrow in more than two years, according to one indicator, even though the Federal Reserve has opted to resist interest-rate cuts in a bid to curb inflation.

The Chicago Fed's National Financial Conditions Index, which measures companies' ability to access cash, fell to its lowest level since January 2022 earlier this month. A lower reading of the gauge signals a looser financial environment.

The apparent easing in financial conditions comes despite the Fed's reluctance to slash interest rates, with inflation still running clear of its 2% target.

The central bank raised borrowing costs from near-zero to around 5.5% between March 2022 and July 2023 and has kept them at that level since. Last week, Chair Jerome Powell warned that rates will have to stay higher for longer to help ease price pressures.

"The first quarter in the United States was notable for its lack of further progress on inflation," he said during a panel in Amsterdam.

"We did not expect this to be a smooth road, but these were higher than I think anybody expected," Powell added. "What that has told us is that we'll need to be patient and let restrictive policy do its work."

Soaring stock prices could be one factor driving the looser financial conditions highlighted by the Chicago Fed's gauge.

The benchmark S&P 500 stock-market index is up almost 12% this year and about 36% since the start of 2023, powered higher by AI and better-than-expected US growth. That's happened despite the lack of rate cuts, which means investors could still park their cash in a savings account.

Last week, BlackRock bond guru Rick Rieder warned that high rates might actually be stoking inflation, by fueling a huge transfer of money from borrowers to lenders and turning the private sector into a net creditor.

"I'm not certain that raising interest rates actually brings down inflation. In fact, I would lay out an argument that actually, if you cut interest rates, you bring down inflation," he told Bloomberg TV on Friday.