CARY, N.C. -

The prognosis for the economy, finance companies and investors continues to be mixed since experts and policymakers keep pointing toward a factor that has shown to be incredibly difficult to control.

Cox Automotive, the Federal Reserve, the National Association of Federally-Insured Credit Unions and S&P Global Ratings all have chimed in on the current landscape in recent days, discussing elements such as interest rates, asset purchases, yield and more.

But the common thread in each viewpoint involves what has impacted everyone for more than a year.

“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery,” the Fed said in its latest statement from the Federal Open Market Committee that voted unanimously to leave interest rates unchanged for now.

“Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” policymakers continued.

“The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain,” they went on to say.

“If progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” policymakers added.

Cox Automotive chief economist Jonathan Smoke offered this quick reaction to the Fed’s action in a blog post on Friday.

“The official statement highlighted the dilemma that the central bankers face. They acknowledged that the rise in COVID-19 cases has slowed the recovery, but they also acknowledged that inflation is elevated,” Smoke said.

“In addition to communicating that tapering could begin before the end of the year, their latest rate projections indicated that the first hike in interest rates could come in 2022, when the prior consensus was 2023 for the first hike,” he added.

And NAFCU chief economist and vice president of research Curt Long also looked to provide some clarity regarding the timeframes for when policymakers might make monetary adjustments.

“The FOMC indicated that it will begin to taper asset purchases soon — most likely in November — amid ongoing improvement in the economy,” Long said. “While there is a divide among committee members as to when liftoff will occur, most seem to view that will be appropriate either in late 2022 or early 2023.

“The fact that the committee made a meaningful revision to its outlook on rates while only marginally increasing its projections for core inflation will cause further doubts among market participants in the FOMC’s commitment to its average inflation target framework,” he continued.

Inflation also was mentioned by S&P Global Ratings, which experts there said, “continues to run hot, to the degree that real (inflation-adjusted) yields on all corporate bonds have plunged into negative territory for the past several months.”

S&P Global Ratings indicated that even corporate debt in the ‘B’ ratings category has had negative real yields since June.

At the same time, analysts pointed out in a news release that companies are struggling with inflated input costs, as supply constraints persist and unforeseen labor shortages take a toll.

“This may eat into profit margins, especially for those that find it hard to pass along these costs to customers,” said David Tesher, S&P Global Ratings’ head of North America Credit Research. “This pass-through may become more difficult as the coronavirus delta variant and the end of federal fiscal stimulus weigh on economic activity and demand.”

For now, S&P Global Ratings determined many near-term indicators project a lower default rate for U.S. corporate borrowers. Analysts noted that rating actions continue to reflect the improving outlook for credit, lending conditions remain favorable and the world’s biggest economy continues to recover from the pandemic-induced shutdown.

In August, S&P Global Ratings forecasted the U.S. trailing-12-month speculative-grade corporate default rate to fall to 2.5% by June of next year, from 3.8% in June 2021.

“The picture looks less rosy when we consider the heightened risks investors have assumed in their quest for yield — if, indeed, any yield is to be found,” S&P Global Ratings analysts said. “The number of upgrades remains a fraction of the downgrades since the onset of the pandemic.

With 37% of our spec-grade ratings at ‘B-’ or lower, the credit risk inherent in the market suggests investors should be reaping substantial compensation. Just the opposite is true,” they continued. “Inflation-adjusted yields on spec-grade corporate bonds turned negative for the first time ever in April, with even ‘B’ real yields falling below zero in June. In other words, investors are effectively paying to lend.”

S&P Global Ratings acknowledged that complicating the matter is a fourth wave of the coronavirus pandemic that has torn through North America and will likely act as a drag on GDP growth through year-end.

Analysts pointed out that real-time data suggested that mobility across most of the U.S. has slowed, with Americans becoming more reluctant to visit restaurants and take trips, as the coronavirus delta variant sweeps through many regions, particularly areas with low vaccination levels.

In this light, S&P Global economists now expect full-year U.S. GDP growth of 5.7%, down from 6.7% in their previous forecast.

“With the U.S. Treasury now nearly two months into its use of ‘extraordinary measures’ to pay the country’s bills, legislators’ squabbling about the need to raise the debt ceiling is as rancorous as it has been in recent memory,” analysts said.

“S&P Global Ratings doesn’t expect the sovereign to default, which would almost surely be catastrophic for the economy and financial markets, both here and around the world,” they continued. “But as we get closer to the drying up of extraordinary measures, a lesser but still potentially damaging consequence could occur: Investors, fearful of the worst, could spur significant volatility in financial markets or look to flee from riskier assets.”

“This would likely drive up borrowing costs, especially for companies at the lower end of the ratings scale,” analysts went on to say. “In some cases, low-rated borrowers could even be shut out of the capital markets completely.”