Moreover, research by Board staff suggests that firms that rely on floating-rate debt, and for that reason might be more vulnerable to rising rates, have tended to use derivatives in recent years to hedge their exposure to interest rate risk. Thus, for many firms, the effect of rising interest rates will be mitigated and stretched out over time.
A third factor contributing to the improvement in financial conditions among businesses is significant belt-tightening by many firms. Over the past few years, the drive to cut costs and boost efficiency has generated rapid productivity gains.