Two critical meetings took place last week that have heightened the sense of foreboding among leading bankers: the gathering of top central bankers at Jackson Hole, and the talks between WeWork creditors who are owed hundreds of millions of dollars.
“Although inflation has moved down from its peak – a welcome development – it remains too high”, warned Jerome Powell, the head of the powerful US Federal Reserve. Since March last year, the Fed has hiked interest rates 11 times, moving its official rate from close to zero to a range of between 5.25 per cent and 5.5 per cent.
In financial circles, there are fears that a potential bankruptcy of the giant co-working space provider WeWork could cause the turmoil in the commercial real estate market to spill over into the financial sector. One possibility would be for WeWork to file for chapter 11 bankruptcy, which would enable it to exit a number of its expensive office leases.But bankers fear that a potential bankruptcy of WeWork, which is the largest office space tenant in a number of major US cities including Manhattan, will only exacerbate the US commercial real estate crisis.
Earlier this month, ratings agency Moody’s Investors Services downgraded 10 regional banks, and put six other lenders on notice that they are under review. Moody’s said the targeted banks remain vulnerable to nervous depositors and investors, the risks from higher interest rates, and the weakening commercial real estate market.