In a troubling sign for the U.S. economy, a historic surge in corporate bankruptcies is underway as debt-saddled companies struggle to adjust to the new era of high interest rates. This surge underscores the far-reaching impact of the Federal Reserve’s aggressive monetary policies aimed at curbing inflation.

New data from S&P Global Intelligence reveals that 75 companies filed for bankruptcy in June alone, marking the highest number recorded in a single month since the early days of the COVID-19 pandemic in 2020. This brings the total number of bankruptcies for 2023 to 346, significantly higher than the levels seen in the past 13 years. The last time such a high number was recorded in the first half of the year was in 2010, with 437 bankruptcies from January through June.

The S&P report attributes this spike to high interest rates, persistent supply chain issues, and a slowdown in consumer spending. These factors are creating a perfect storm of financial distress for many companies, particularly those already carrying heavy debt loads.

In 2022 and 2023, the Federal Reserve sharply raised interest rates to the highest levels since 2001, aiming to crush soaring inflation. This marked the end of more than a decade of ultra-easy money, a shift that has left many companies struggling to cope. While the Fed’s intention was to stabilize the economy, the unintended consequence has been a wave of corporate bankruptcies.

The Federal Reserve now faces a delicate balancing act. With signs that economic growth is slowing and inflation is once again falling, officials are debating when to ease up on the high-interest-rate policy. Most investors expect the Fed to begin cutting rates in September or November, penciling in just one or two reductions this year—a stark contrast to earlier expectations of multiple cuts beginning in March.

Some economists argue that the Federal Reserve should cut rates sooner to mitigate risks to the financial system. Mark Zandi, Moody’s chief economist, warned in a recent Washington Post op-ed that the ongoing pressure of high rates could expose vulnerabilities in the financial system. “The economy has weathered the Fed’s higher-for-longer strategy admirably well, but there is a mounting threat that the ongoing pressure will expose fault lines in the financial system,” Zandi wrote. He pointed to last year’s banking crisis as an example of how relentless high rates can cause unexpected financial turmoil.

The rising tide of bankruptcies began to surge in April, as companies increasingly felt the burden of high interest rates and realized that relief might not be imminent. “Fading hopes of lower interest rates are likely contributing to the increase in filings,” S&P noted, explaining that many businesses had initially held out hope for rate cuts earlier in the year.

June saw notable bankruptcies from companies like electric vehicle maker Fisker and Chicken Soup for the Soul, which owns the DVD rental chain Redbox. These high-profile collapses underscore the widespread challenges facing businesses across various sectors.

The historic surge in corporate bankruptcies serves as a stark reminder of the delicate balance needed in economic policymaking. While the Federal Reserve’s high-interest-rate strategy aims to curb inflation, it also places immense pressure on businesses, leading to a wave of financial distress. As the Fed navigates this complex landscape, the decisions made in the coming months will be crucial in determining the future stability of the U.S. economy.