The Fed's Negative Effects on the Economy

Borrowers will find these loan yields pretty expensive compared to a year ago, but they will try still to keep the same level of leverage that they kept in the past. As you progress towards the end of the cycle, this mechanism will break very quickly because borrowing costs will become inaccessible. We're back stopped in any meaningful downward cycle since the great financial crisis and why? Because inflation expectations were below 2%. Inflation was below 2%. So central banks would always step in and provide a backstop. But now they can't.

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