Board of Governors of the Federal Reserve System

Figure 1. Comparing Nonfinancial public and Private Debts in the United States

This is a line chart that shows the historical 4-quarter moving average of public firms’ debt and private firms’ debt. The y-axis measures amount in trillions of dollars, and the x-axis is a quarterly timeline from 2010Q4 to 2022Q2. There are two lines plotted. The first line is a green dashed line, indicating private firms’ debt. It starts in 2013Q2 at $3.4 trillion and increases steadily to $5.5 trillion in 2022Q2. The second line is solid in blue, and it measures public firms’ debt. This series begins in 2010Q4 at $4.5 trillion, raising at a relatively constant speed until 2019Q1 at $7.5 trillion. Since then, it continues to increase but at a greater speed, reaching $9.1 trillion in 2022Q2.

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Figure 2. Nonfinancial Private Debt Outstanding by Maturity

This figure consists of three panels of bar chart that illustrates outstanding nonfinancial private debt in loans and bonds by maturity. In each panel, the y-axis measures dollar amount in billions, and six buckets of maturities are listed on the x-axis: 2022, 2023, 2024, 2025, 2026-2031, and 2032 and beyond. Panel a measures the volume of loans outstanding for fixed-rate and floating-rate loans. The total amount of loans outstanding that mature in 2022 is $150 billion, $130 billion of which are floating-rate loans. The total amount of loans outstanding that matures in 2023, 2024, 2025, 2026-2031, and 2032 and beyond is $160, $153, $105, $273, and $155 billion respectively. Most of these outstanding loans are floating-rate loans as well. Panel b in this figure measures the volume of floating-rate loans outstanding with investment grade and junk firm ratings. The total amount of loans outstanding that matures in 2022 is $125 billion. The total amount of floating-rate loans outstanding that mature in 2023, 2024, 2025, 2026-2031, and 2032 and beyond is $138, $133, $90, $216, and $124 billion respectively. In each maturity bucket, more than half of the outstanding volume is attributable to firms with a junk rating. Unrated firms are almost negligible. Panel c illustrates the amount of bond debt outstanding with investment grade and junk ratings. The total volume of bonds that mature in 2022 is $182 billion, $117 billion of which are attributable to firms with investment grade ratings. The total amount of bonds outstanding that mature in 2023, 2024, 2025, 2026-31, and 2032 and beyond is approximately $84, $57, $67, $155, and $140 billion respectively. Except in the maturity bucket of 2022 and 2032 and beyond, more than 50 percent of the volume are attributable to firms with junk ratings. 

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Figure 3. Distribution of Historical ICR

This is a density plot that plots the truncated distribution of historical ICR. The y-axis measures the density, ranging from 0 to 0.08, and the x-axis measures ICR ranging from -10 to 29. There are two lines in this plot. The blue dashed line plots the distribution of ICR in 2021Q2, and the green solid line plots the distribution in 2022Q2. There is a gray solid vertical line at zero. Both distributions are centered around 2. The center of the ICR distribution in 2022Q2 peaks at a density of 0.067, whereas the center of the ICR distribution in 2022Q2 peaks at a density just below 0.05. Both distributions are skewed to the right. Compared to conditions in 2022Q2, more firms in 2021Q2 are clustered with an ICR between -2 and 6.

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Figure 4. Projections: Standard Model

This figure has four panels that illustrate the historical series of interest expense, earnings, and ICRs from 2014Q1 to 2022Q2, followed by 11 quarters of projection under the baseline, severely adverse, and stagflation scenarios. Panel a presents private firm interest expense. The historical series of interest expense starts at $206.63 billion in 2014Q1 with a general increasing trend with some fluctuations. It reaches a historical nadir in 2014Q4 at $185.95 billion and then steadily increases to $230.91 billion in 2019Q4. There is a noticeable hike starting in 2020Q1, where interest expenses increase to $250.91 billion in 2020Q3. It decreases to $239.94 billion in 2021Q4 and increases to a historical height in the jump off quarter 2022Q2 at $267.59 billion. In the baseline scenario, interest expense gradually increases to $283.97 billion in 2023Q2 and falls to $278.53 billion in 2025Q1. In the severely adverse scenario, interest expense peaks at $286.66 billion 2023Q2 and decreases to 268.19 by 2025Q1. In the stagflation scenario, interest expense first peaks at $286.27 billion in 2024Q1 and declines to $281.38 billion at the end of the projection period. Panel b plots private firm EBIT. The historical series of EBIT starts in 2014Q1 at $1027.06 billion with a general constant growth rate with some fluctuations until the growth rate increases in 2020Q2. EBIT reaches to $968.65 billion in 2020Q1 and increases to $1.48 trillion in the jump off quarter 2022Q2. In the baseline scenario, EBIT continues to increase and reaches to $1.76 trillion in 2025Q1. In the severely adverse scenario, EBIT decreases and reaches a trough of $1.29 trillion in 2023Q4, and it recovers to $1.40 billion in 2025Q1. In the stagflation scenario, we observe a general downward trend in EBIT. It remains relatively constant until 2023Q4 before it sharply declines to a trough of $1.31 trillion in 2024Q4. It increases slightly to $1.32 trillion in 2025Q1. Panel c presents the 25th percentile and median ICR of private firms. The historical series of 25th percentile ICR observes little movements, starting from 1.27 in 2014Q1 to 1.60 in 2022Q2. In the baseline scenario, it increases moderately to 1.72 by 2025Q1. In the severely adverse scenario, it first decreases to 1.21 in 2023Q3 before it recovers to 1.58 in 2025Q1. In the stagflation scenario, the 25th percentile of ICR has an overall decreasing trend with a trough of 1.25 in 2024Q4.The historical series of the median ICR starts at 5.09 in 2014Q1 and displays a downward concave shape until 2020Q4 at 5.04. Since then, median ICR immediate increases at a greater speed and ultimately reaches to 8.67 in 2022Q2. In the baseline scenario, the median ICR first decreases to 6.51 in 2023Q2 before increasing to 8.28 by the end of the projection period. In the severely adverse scenario, it decreases and reaches a trough at 5.44 in 2023Q2 before increasing to 8.57 by 2025Q1. In the stagflation scenario, the median ICR experiences a more prolonged decline. Since jump off, it decreases to a trough of 5.72 in 2024Q3 and increases marginally to 6.03 in 2025Q1. Lastly, panel d presents the aggregate ICR of private firms. The historical series of aggregate ICR starts at 4.97 in 2014Q1 with a general downward trend and reaches a historical trough at 4.19 in 2020Q3. Since then, it increases and reaches 5.52 in 2022Q2. In the baseline scenario, aggregate ICR initially dropped to 5.29 in 2023Q1 before increasing rapidly to 6.32 in 2025Q1. In the severely adverse scenario, aggregate ICR first declines to 5.25 in 2023Q1 and plateaus through the end of 2023 before decreasing further to 4.63 in 2024Q4. It marginally increases to 4.71 in 2025Q1. 

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Figure 5. Distribution of Projected ICR

This is a density plot that plots the truncated distribution of ICR under the baseline, severely adverse, and stagflation scenarios in the projection quarter when its median is at its trough. The y-axis measures the density, ranging from 0 to 0.08, and the x-axis measures ICR ranging from -9 and 29. There is a gray solid vertical line at zero. There are three lines in this plot, each representing a projection scenario. All three lines are skewed to the right and centered around 2. The green dotted-dashed line plots the distribution of ICR in 2023Q2 under the baseline scenario. It peaks at a density of 0.063. The blue dashed line plots the distribution of ICR in 2023Q1 under the severely adverse scenario peaking at a density just above 0.07. Lastly, the red dotted line plots the distribution of ICR in 2023Q3 under the stagflation scenario peaking at a density of 0.065. Going from the baseline scenario to the severely adverse scenario, the figure shows that ICRs become more concentrated between zero and four. Together, this figure shows how more firms falls under the ICR threshold of one as economic condition vary across the baseline, severely adverse, and stagflation scenarios. 

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Figure 6. Debt-as-risk Projections: Standard Model

This figure has two panels that illustrate historical debt-at-risk in dollar amount and as a fraction of total private firms’ debt followed by 11 projections under the baseline, severely adverse, and stagflation scenarios. Panel a presents debt-at-risk, defined as the volume of debt attributable to firms with ICR less than one. We observe some fluctuations the historical series. Starting in 2014Q1 at a historical trough of $598.70 billion, debt-at-risk fluctuates with a general increasing trend. It reaches a peak in 2021Q2 at $1.22 trillion and decreases to $1.15 trillion in 2022Q2. In the baseline scenario, debt-at-risk initially increases to $1.16 billion in 2023Q1 before decreasing significantly throughout the projection period to $1.06 trillion in 2025Q1. In the severely adverse scenario, debt-at-risk increases and peaks at $1.28 trillion in 2023Q3, reflecting a slowdown in output growth. Yet, a recovery brings debt-at-risk down to $1.19 trillion by 2025Q1. In the stagflation scenario, debt-at-risk first increases marginally to $1.17 trillion in 2023Q4 and starts to increase at a greater speed to $1.25 trillion in 2025Q1. Panel b expresses debt-at-risk as a fraction of total debt. Similar to its volume series, the historical series of debt-at-risk as a fraction of total debt fluctuates overtime with hikes and declines. Starting in 2014Q1 at 0.146, the fraction of debt at risk peaks at 0.239 in 2021Q2 and decreases to 0.185 in 2022Q1. In the baseline scenario, fraction of debt at risk initially increases slightly to 0.187 in 2023Q1 before it decreases throughout the rest of the projection period to 0.171 in 2025Q1. In the severely adverse scenario, fraction of debt at risk increases and peaks at 0.206 in 2023Q3 before falling to 0.191 by the end of the projection period. Lastly, in the stagflation scenario, the fraction of debt at risk first increases marginally to 0.188in 2023Q4 and starts to increase at a greater speed, reaching 0.202 in 2025Q1.

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Figure 7. Projections: Earnings Heterogeneity across Industries

This figure has two panels that illustrate historical series of aggregate ICR and debt-at-risk as a fraction of total debt from 2014Q1 to 2022Q2 followed by 11 quarters of projections under the baseline, severely adverse, and stagflation scenario. Solid lines from 2022Q3 and onward present projections allowing heterogeneous earnings growth across industries. For comparison, baseline dash-dotted line severely adverse dashed line, and stagflation dotted line indicate standard model projections illustrated in Figure 4 and Figure 6. Panel a presents private firms’ aggregate ICR. The historical series of aggregate ICR starts at 4.97 in 2014Q1 with a general downward trend and reaches a historical trough at 4.19 in 2020Q1. Since then, it starts to increase and reaches 5.52 in 2022Q2. In the baseline scenario, aggregate ICR initially drops to 5.25 in 2023Q1 and increases steadily to 6.55 in 2025Q1. In the severely adverse scenario, aggregate ICR first declines to a trough at 4.39 in 2023Q2 reflecting an economic slowdown, but it recovers and increases to 5.11 by 2025Q1. In the stagflation scenario, aggregate ICR decreases to a plateau of 5.2 in 2023Q3, and it decreases to further to 4.50 in 2024Q4 before increasing marginally to 4.58 in 2025Q1. Panel b expresses debt-at-risk as a fraction of total debt. The historical series of debt-at-risk as a fraction of total debt fluctuates overtime with hikes and declines. Starting in 2014Q1 at 0.146, the fraction of debt at risk peaks at 0.239 in 2021Q2 and decreases to 0.185 in 2022Q2. In the baseline scenario, fraction of debt at risk initially increases to 0.177 in 2023Q1 before it decreases significantly throughout the rest of the projection period to 0.157 in 2025Q1. In the severely adverse scenario, fraction of debt falls slightly in the first quarter, but it increases and peaks at 0.199 in 2023Q4. The recovery lowers the fraction of debt at risk to 0.184 by the end of the projection period. Lastly, in the stagflation scenario, the fraction of debt at risk initially increases at a modest speed to 0.178 in 2023Q4 before it drastically increases to 0.194 in 2024Q4. 

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Figure 8. Projections: Credit Line Draw Down

This figure has two panels that present historical series of interest expense and debt-at-risk as a fraction of total debt followed by 11 quarters of projections under the severely adverse and stagflation scenarios. Solid lines from 2022Q3 and onward present projections assuming firms draw down their credit line completely and immediately in the first quarter of projection 2022Q3. For comparison, severely adverse dashed line and stagflation dotted line indicate standard model projections illustrated in Figure 4 and Figure 6. Panel a plots private firms’ interest expense. The historical series of interest expense starts at $206.63 billion in 2014Q1 with a general increasing trend with some volatilities. It reaches a historical nadir in 2014Q4 at $185.95 billion and then steadily increases to $230.91 billion in 2019Q4. There is a noticeable hike starting in 2020Q1, where it increases to a $250.91 billion in 2020Q3. It decreases to $239.94 billion in 2021Q4 and increases to a historical height in the jump off quarter 2022Q2 at $267.59 billion. In the severely adverse scenario, firms pay additional interest from changes in prime rates and by borrowing more through their undrawn credit line. As a result, we observe a jump in interest expense in 2022Q3 to $305.23 billion and reaches a peak of $331.90 billion in 2023Q2. With lower prime rates in the second half of the projection period, interest expenses decrease to $293.83 billion in 2025Q1. In the stagflation scenario, firms’ interest expense jumps to $305.23 billion in 2022Q3 due to a higher prime rate and the additional interest from extra borrowing. Reflecting growing prime rates, interest expense continues to increase and peaks at $331.11 billion in 2024Q1 before marginally falling to $321.01 by 2025Q1. Panel b plots debt-at-risk as a fraction of total debt. The historical series of debt-at-risk as a fraction of total debt fluctuates overtime with hikes and declines. Starting in 2014Q1 at 0.146, the fraction of debt at risk peaks at 0.239 in 2021Q2 and decreases to 0.185 in 2022Q2. Under the severely adverse scenario, fraction of debt at risk peaks at 0.215 in 2023Q3 before falling to 0.197 by 2025Q1. Under the stagflation scenario, fraction of debt at risk initially reaches a plateau at 0.206 in 2023Q3 before reaching at peak at 0.212 in 2024Q4, and it declines to 0.211 in 2025Q1. 

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Figure 9. Projections: Credit Line Drawdown with Counterfactual Scenario

This figure builds on top of panel b in Figure 8. It presents a historical series of debt-at-risk as a fraction of total debt followed by 11 quarters of projections. In addition to the severely adverse and stagflation scenarios illustrated in panel b of Figure 8, a projection gray dotted-dashed line is added to illustrate a counterfactual scenario that generates stress close to pandemic heights. Starting at a jump off value of 0.185 in 2022Q2 under the counterfactual scenario, fraction of debt at risk increases drastically to a peak of 0.27 in 2023Q4 before falling to 0.211 in 2025Q1.

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