The Fed Is Sowing Seeds Of The Next Credit Disaster

By James Crombie, Bloomberg Markets Liver reporter and strategist

US monetary policymakers can breathe a sigh of relief after pulling off the most aggressive hiking cycle in recent memory without crashing credit markets. But the swift easing already underway sows seeds of the next disaster, distorting debt valuations and piling liquidity onto markets already juiced by a central bank backstop.

Mission accomplished could be the Federal Reserve slogan after it stifled inflation without toppling the economy, or shuttering debt markets. Defaults increased slightly, bankruptcies ticked up — but the damage was much less than the Cassandras had feared, even as funding costs for the weakest borrowers doubled.