America has avoided a recession. But don’t thank the Fed—thank the corporate sector, says top strategist

Albert Edwards is known for lamenting “Greedflation.” The veteran strategist at the French investment bank Société Générale argued in a series of research notes this year that corporations used the pandemic and the war in Ukraine as an excuse to raise profit margins, essentially profiteering from the black swan events. He even made the case last month that this type of profit-led inflation has helped delay the onset of what many are calling the most widely predicted U.S. recession in history.

Wall Street economists and billionaire investors repeatedly warned over the past year that the Federal Reserve’s rapid interest rate hikes have made avoiding an economic downturn nearly impossible. But that downturn has yet to arrive, and now, Edwards has spotted another economic oddity that is helping many U.S. corporations avoid the worst of the Fed’s wrath and stave off a recession—at least for now.

“It’s not just ‘Greedflation’ that has boosted U.S. profit margins and delayed the recession,” the strategist wrote in a Friday note. “Interest rates simply aren’t working as they once did…It is indeed a mad, mad world.”

Edwards explained that, historically, when interest rates rise, interest payments on corporate debt rise with them. But over the past year, despite interest rates steadily increasing, net interest payments have fallen. “What on earth is going on?” he asked. “Something very strange has happened…”

Edwards pointed to what he called the “maddest macro chart” he’s seen in years as evidence of the broken relationship between interest rates and corporate interest payments. It shows that corporation’s net interest payments have fallen 25% year-over-year, despite a sharp rise in the fed funds rate.

Edwards went on to explain that during the pandemic, when the Federal Reserve cut interest rates to near zero to boost the economy, corporations were able to refinance much of their debt, locking in low rates for the long term. This enabled corporate net interest payments to fall, even while the Fed was hiking rates.

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As Yves Bonzon, group chief investment officer at the Swiss wealth manager, Julius Baer, explained in a May article, some 80% of S&P 500 companies’ debt has a fixed interest rate, which means “the S&P 500 is relatively insensitive to interest rates.”

Edwards wrote that this insensitivity to rising rates, coupled with Greedflation, has enabled U.S. corporations to earn far more than expected.

“[I]t helps explain the recession’s tardiness,” he wrote. “Companies have effectively played the yield curve in reverse and become net beneficiaries of higher rates, adding 5% to profits over the last year instead of deducting 10%+ from profits as usual.”

This story was originally featured on Fortune.com

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