The Private Credit Time Bomb and the Fed’s Liquidity Trap

1. What's Going On, Really? The Federal Reserve has started to edge away from peak rates, but the system is still living in a high-for-longer regime by any historical standard. After taking the federal funds target range to a cycle high of roughly 5.25–5.50%, the Fed has only recently begun cutting in 25 bp steps, bringing the range down to about 3.75–4.00% as of the October 2025 FOMC meeting. For households and traditional corporates, this shows up as slower credit growth and higher debt service. For the US private credit market and the banking system that funds and intersects with it, the impact is more structural: Private credit AUM has ballooned to roughly $3 trillion globally , up from about $2 trillion in