Macro Monday: If the Fed Is Pausing, Why Are Credit Markets Still Screaming?

June 02, 2025

The Fed may be done hiking—but the credit squeeze is still on.

Powell says “pause,” but the real pressure is coming from banks and lenders.

People are missing payments. Borrowing costs are rising. And banks are lending less. Money isn’t disappearing—it’s just harder to find where you used to get it.

And those companies that thrived on cheap cash?

They’re feeling the pinch already.

🧯 Credit Markets Are Quietly Sounding the Alarm

Here’s what institutional investors are tracking:

1) Higher Borrowing Costs: The extra yield on riskier bonds has climbed. In simple terms, investors now demand more pay to hold junky debt.

2) Insuring Debt Costs More: The cost to protect against corporate defaults jumped to its highest in months—people sense more danger of companies missing payments.

3) Delinquencies Are Up:

  • Small business loans: About 1.3 % of these loans are past due, up from roughly 1.1 % a year ago. It’s higher than last year but nowhere near the 3 %–4 % we saw back in 2009.

  • Auto loans: Around 1.5 % of all car loans (and 6 % of subprime loans) are late. That’s more than early 2024 but still below the worst levels of 2009.

4) Banks Are Pulling Back: Overall bank lending barely grew in the first quarter of 2025—much slower than before the pandemic. Lenders tied to commercial real estate have been especially cautious: loans are almost flat.

📉 Companies to Watch

These names depend on cheap borrowing and could struggle if credit stays tight:

  • $RIVN (Rivian): Built electric trucks, but still losing money and carrying over $5 billion of debt. It’s trying to borrow at nearly 10 % interest to cover what’s coming due.

  • $UPST (Upstart): An AI-based lender that hasn’t made a profit yet. It has about $1.5 billion of debt against a market value of $3.6 billion—so higher rates could hurt.

  • $CVNA (Carvana): Ran a used-car empire, but it’s still deeply in debt (almost $5 billion). Lenders are tightening terms on what it can borrow.

  • $SOFI (SoFi): Now turning a profit and improving loan quality, but still carries lots of consumer loans. If people start missing payments, SoFi will feel it.

  • $ALLY (Ally Financial): A big auto lender whose loan defaults have improved, but it still faces pressure from the commercial real-estate side of banking.

✅ Portfolio Move to Consider This Week

Rotate away from highly-leveraged, unprofitable growth names and into:

  • Cash-flow-positive compounders with clean balance sheets like $MSFT, $NVO, or $ADBE.

  • Dividend growers in defensive sectors (look at $PEP, $HRL, or $JNJ).

  • Consider partial exposure to short-duration bonds or bond ETFs like $SHY or $IGSB, which may benefit as the Fed pauses but spreads widen.

Risk lens: Focus on margin of safety, not just narrative upside.

🧠 The Bottom Line

This isn’t 2008. But it’s also not 2021 anymore.

If you’re still positioned for an era of cheap capital, you’re fighting the last war.

Credit is the pressure valve now. Watch who survives the squeeze.

To your edge,
—StocksTrades.AI

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.