In addition, a lesson we can take from the episode of policy tightening in 1994 is that rising interest rates have little detrimental effect on the financial health of the corporate sector when the rate increases occur in the context of an expanding economy. Specifically, corporate credit quality improved on balance after 1994 with the pickup in economic activity and corporate profits.
Third, the improvement in financial conditions among businesses is due partly to some significant belttightening by many firms. Over the past few years, the drive to cut costs and boost efficiency has generated rapid productivity gains.