To date, the default rate on leveraged loans has been at the low end of its historical range, and corporate credit conditions have been favorable, with low interest expenses and low expected default rates. However, if spreads rise sharply or economic conditions deteriorate significantly, we could see downgrades, refinancing challenges, rising delinquencies and defaults, and losses to investors.
But in the scheme of things, a central bank's ability to smooth asset prices (if it wanted to) or to buffer shocks to spending or production is somewhat limited. The textbooks teach that monetary policymakers can vary interest rates to offset fluctuations in aggregate demand.