Illustration: Lazaro Gamio/Axios

High levels of corporate debt are among the risks that could make the fallout from the coronavirus economic shock even worse, the Federal Reserve warned in its twice-yearly report released on Friday.

Why it matters: Low interest rates and a flourishing economy tamped down concerns about companies' rising debt levels. With the U.S. in the worst economic downturn since the Great Depression, the Fed says those debt loads could "amplify the adverse effects of the Covid-19 outbreak."

By the numbers: Billions of dollars worth of investment-grade ($170 billion) and lower-rated ($29 billion) non-financial corporate debt is due by year's end, the report notes.

  • Fed actions have helped thaw debt markets. Still, the Fed worries tight financing conditions may limit businesses' ability to refinance that debt, which would "intensify the economic effects of the pandemic on these businesses’ employment and investment decisions."

Of note: There's been a frenzy of corporate debt offerings from cash-strapped companies since the Fed said it planned to help unfreeze the bond market in mid-March.

  • "Economic activity is contracting sharply, and the associated reduction in earnings and increase in credit needed to bridge the downturn will expand the debt burden and default risk of a highly leveraged business sector," the Fed said.

What they're saying: The coronavirus was the most cited potential shock (80%) for the economy within the next 12-18 months for banks, investment firms, academic institutions and political consultancies surveyed by the Fed.

  • The next most frequently cited potential shocks were: the effectiveness of the global policy response, followed by corporate debt or a credit cycle turn and the U.S. election.

The Fed also warned...

  • U.S. banks could face “material losses” from households unable to repay debts in the midst of the coronavirus outbreak.
  • There could be a significant hit to prices of stocks and other assets, "should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains reemerge."
  • The Fed flagged elevated commercial real estate prices as particularly vulnerable. Disruptions in hospitality and retail sectors are "putting the ability of these sectors to make timely mortgage and rental payments into question."

The bottom line: The world's most powerful central banks already expect the economic damage from the pandemic to be deep and long-lasting, Axios' Dion Rabouin reports.

Go deeper: Central banks load up for a long war against coronavirus

Go deeper

Dave Lawler, author of World
Aug 25, 2020 - World

Countries put their populations first in scramble for COVID vaccines

Photo Illustration: Sarah Grillo/Axios. Photo: Joe Raedle/Getty Images

The race is on to test and produce billions of doses of the myriad coronavirus vaccines currently in development — and to determine how they will be distributed if approved for use.

Take three pieces of news from the last 48 hours.

Updated 37 mins ago - Health

World coronavirus updates

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Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

New Zealand Prime Minister Jacinda Ardern announced Auckland gatherings limits will increase from 10 to 100 eased late Wednesday and the rest of the country will see all domestic restrictions lifted from midnight Monday.

The big picture: Ardern delayed the country's election until Oct. 17 as authorities work to stamp out a coronavirus cluster in Auckland, after the virus' re-emergence in NZ. There have been single-digit or zero domestic cases in NZ's most populous city since the government reintroduced restrictions.

Updated 56 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 9:30 p.m. ET: 30,918,269 — Total deaths: 959,059— Total recoveries: 21,152,312Map.
  2. U.S.: Total confirmed cases as of 9:30p.m. ET: 6,799,044 — Total deaths: 199,474 — Total recoveries: 2,590,671 — Total tests: 95,108,559Map.
  3. Politics: Testing czar on Trump's CDC contradictions: "Everybody is right" Ex-FDA chief: Career scientists won't be "easily cowed" by political vaccine pressure.
  4. Education: What we overlooked in the switch to remote learning.
  5. Health: The dwindling chances of eliminating COVID-19 — 7 states set single-day coronavirus case records last week.
  6. World: England sets £10,000 fine for breaking self-isolation rules — The countries painting their pandemic recoveries green.