Corporate bankruptcies soared to a 14-year high in 2024, underscoring the Catch-22 facing the Federal Reserve as it wrestles with interest rate policy to battle sticky price inflation.According to data gathered by S&P Global Market Intelligence, 61 corporate bankruptcy filings were made in December, bringing the total for 2024 to 694. This was a 9.2 percent increase over 2023 and the highest number since 2010, in the aftermath of the Great Recession.There have been more corporate bankruptcies in the last two years (1,329) than during the pandemic era of 2020 and 2021 (1,043).Party City Holdco Inc. and China Construction America Inc. announced the largest bankruptcies in December. The consumer discretionary sector recorded the most bankruptcies in 2024 (109), followed by the industrial sector (90).Consumer discretionary is a category of businesses that sell goods and services considered non-essential. According to S&P Global, this sector “has been particularly susceptible to economic headwinds, even with strong overall U.S. retail sales activity, as consumer buying trends have shifted and budgets have tightened due to inflation.”  Why the Big Jump in Corporate Bankruptcies?Businesses are going under due to a combination of debt and higher interest rates.Total debt accumulated by credit-rated nonfinancial U.S. companies reached a quarterly record of $8.45 trillion in Q3, according to Market Intelligence Data. Couple with a higher interest rate environment created by the Federal Reserve to battle fight inflation, you have a recipe for disaster.S&P Global specifically noted that “businesses continued to face pressure in 2024 from elevated interest rates.”This explains why the Fed has lowered rates by a full percentage point since September despite price inflation remaining stuck well above the mythical 2 percent target. The central bank held interest rates at zero for nearly a decade after the 2008 Financial Crisis and dropped them back to that level during the pandemic. Years of artificially low rates coupled with multiple rounds of quantitative easing addicted the economy to easy money and incentivized a borrowing binge. The debt-riddled bubble economy simply can’t function in anything remotely resembling a normal interest rate environment.Even now, monetary policy is loose, based on the Chicago Fed’s Financial Conditions Index. The NFCI was at –0.64 as of Jan. 17. A negative number indicates loose conditions from a historical standpoint.This puts the Federal Reserve in an impossible situation. It simultaneously needs to raise rates to fight the price inflation driven by easy money and lower rates to keep the air in the debt bubble.S&P Global hinted at the issue facing the Fed.

“While some relief came in September when the U.S. Federal Reserve began lowering its benchmark interest rate from a 20-year high, the central bank’s monetary easing may slow in 2025.”

This could accelerate the surge in corporate bankruptcies and create economic chaos.On the other hand, cutting rates more aggressively could revive the inflation dragon. Even with rates elevated compared to the decade after the 2008 financial crisis, we’re seeing an increase in the money supply which is, by definition, inflation.Powell & Company are walking that tightrope, but stubbornly high price inflation and rising corporate bankruptcies indicate their balance is starting to falter. More By This Author:Getting A Little Costs A Lot! Axel Merk On Markets, Gold, And Global DynamicsWhy Gold Will Continue To Shine In 2025 And Beyond