The race to vaccinate Americans is likely to bring an end to the pandemic in the months ahead, but the outlook for the U.S. economy is far less certain. On Friday, the Federal Reserve Board delivered its Monetary Policy Report to Congress. While providing statistics suggesting that U.S. businesses could rebound when the pandemic ends, the report noted significant risks of business bankruptcies as well as a steep drop in commercial real estate prices.

Businesses have taken on significant amounts of debt over the past year as they struggled to deal with the economic and financial fall-out (including forced shutdowns) from COVID-19. As a result, the Fed reported that "business leverage stands near historical highs." Despite low interest rates and the prospects for improved earnings, it cautioned that insolvency risks for businesses of all sizes remain considerable. The risks of leverage are exacerbated by the uncertainties created by shifts in consumer spending and high levels of household debt, which point to decreased demand for consumer goods and services.

Observing that "commercial real estate prices remain at historically high levels despite high vacancy rates," the report also warned that commercial real estate appears susceptible to sharp declines, particularly "if the pace of distressed transactions picks up or, in the longer term, the pandemic leads to permanent changes in demand."