market participants have their eyes on the federal open markets committee this week to see if fomc members vote to raise the federal funds rates again the fomc has raised rates nine times since march 17 2022 because inflation is nowhere near the federal reserve’s 2 target rate and due to jpmorgan’s recent acquisition of first republic bank on monday i believe that the federal reserve will raise rates on wednesday the fomc is likely to raise rates twentyfive basis points to a range of 50525 this would put rates at about a 16year high this level of rate rises has been an unpleasant surprise for many consumers and unfortunately even bank risk managers who have never experienced the fact that interest rates do go up to curb inflationary pressures the fact that three us regional banks have failed in less than two months primarily due to risk managers’ and executives’ inability to measure how interest rate risk can make banks illiquid puts into question how much longer the federal reserve can keep raising rates after this week’s fomc meeting my fear is that these rate rises are pushing both corporate as well as personal default rates up the more that interest rates rise the more cost of borrowing goes up for anyone holding variable rate debt or for those who need to refinance existing debt the expectation that default rates will go up significantly was very much on the mind of presenters at the s  p global market’s credit and risk symposium that i attended last thursday numerous presenters and guests said that they are expecting default rates to rise to over 4 by the end of the year this is not as high as the recent high of slightly over 7 default rate in 2010 yet it is more than double of where default rates are presently i am not surprised that loan default rates started to rise toward the end of 2022 a couple of quarters after the federal reserve started raising rates the list of leveraged companies experiencing the pressures of rising interest rates is growing retail and telecommunications companies have higher default rates than the average broadcast and media as well as companies in leisure and entertainment are experiencing default rates that are significantly more than double the average sector there certainly has been significant concern about commercial mortgages given the significant decrease in office occupancy rates commercial mortgages for offices are particularly vulnerable fitch ratings analysts expect office loan delinquency rates for us commercial mortgagebacked securities cmbs  to increase to 35–40 by yearend 2023 this would be over double the current 145 default rate presently defaults on commercial mortgages would impact both bank and nonbank lenders adversely fortunately for the american economy the residential mortgage default rate has been very low “increased borrowing costs will definitely have an impact on those homeowners who have adjustablerate mortgages” gregg menell ceo managing broker of the pendulum property group told me in an interview yesterday he explained that “these borrowers will see a substantial increase in their monthly payments and may be forced to sell the problem is where are they going to go their next mortgage will be just as expensive and the rental market is frothy as well” most american mortgage holders have fixedrate mortgages this makes the residential mortgage sector less vulnerable to interest rate hikes at least in the nearterm other recent articles by this author with first republic takeover jpmorgan is america’s most globally systemically important bank to know why silicon valley bank failed congress should ask former ceo greg becker first republic bank’s earnings call did not inspire confidence first republic bank’s financial ratios will reveal serious trouble what to watch for with us regional banks this week big us banks are preparing for an impending recession investors eyes should be on leveraged finance markets deutsche bank should disclose its current liquidity levels to investors from ferdinand marcos to russian oligarchs troubled credit suisse is a repeat offender how trump’s deregulation sowed the seeds for silicon valley bank’s demise warning signals about silicon valley bank were all around us high interest rates will continue to challenge most sectors of the economy leveraged loan default volume in the us has tripled this year probability of default is rising for high yield bonds and leveraged loans the us leveraged finance market is at a record 3 trillion