Boston Federal Reserve President Eric Rosengren talks to FOX Business Network Correspondent Edward Lawrence during"Making Money with Charles Payne" at Fox Business Network Studios on September 20, 2019 in New York City.The historically low interest rates seen before the coronavirus pandemic worsened the current recession by driving a wave of bankruptcies, Eric Rosengren, president of the Federal Reserve Bank of Boston, said Thursday.
The central bank's benchmark rate sits near zero and is expected to stay there through 2024. Yet interest rates weren't much higher before the pandemic slammed the US economy and forced nationwide lockdowns. The federal funds rate hovered around 1.5% in late 2019 after three rate cuts through the second half of last year.
"The slow build-up of risk in the low-interest-rate environment that preceded the current recession likely will make the economic recovery from the pandemic more difficult," he said.Warren Buffett's Berkshire Hathaway shocked investors with its Snowflake and Barrick Gold bets. A veteran shareholder explains why they might be part of a new strategy
A build-up in risk can intensify downturns, as levered businesses can more easily default on debt when facing a slowdown in business activity and, in turn, revenue. Greater leverage throughout the economy also kept many firms from participating in emergency lending programs. In all, risk-taking is"a contributing factor to the bankruptcies we have already seen, unfortunately with more quite likely in the coming months," Rosengren said.