“Everything was built around cheap money,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and now head of the American Action Forum. “Every business in America is now thinking about their financial structure differently, and they should, but those are costly adjustments, and some people will not make it.”

This sea change is already slamming the most interest-rate-sensitive sectors of the economy such as housing and commercial real estate, while debt costs for consumers, businesses and the U.S. government are climbing.

Here are some of the key danger zones to watch:

Milestone: $1 trillion in credit card balances

Average credit card borrowing costs rocketed to above 20 percent during the last two years as the Fed raised rates to tackle inflation, according to Federal Reserve of St. Louis data.

The balances that households placed on their cards also rose. Total credit card balances surpassed $1 trillion for the first time this year. If rates stay higher for longer, it’ll make it that much more expensive for consumers to pay off their debt.

At the same time, the delinquency rate — the amount of credit card debt that’s past due — is back to pre-pandemic levels. Those rates plummeted during the pandemic when households were flush with cash. First, inflation ate away at those savings, and now, as more consumers face headwinds from the resumption of student loan payments and rising energy prices, the credit pinch could be fierce.

That’s feeding expectations that consumer spending could slide in the coming months, triggering a slowdown in economic growth.

As a result, some consumers are turning to less traditional products to continue spending.

The use of buy-now, pay-later services, which enable people to pay down purchases in installments, has become popular among those already carrying credit card balances, according to data released by Morning Consult this week. A third of those who use those products say they’ve used a credit card to pay off debt, setting them up for a “vicious cycle that’s hard to overcome,” the market research firm said.

“That might be what we’re seeing here; people using these products to get access to credit that they wouldn’t otherwise have,” said Jaime Toplin, a senior financial services analyst with Morning Consult.

Corporate America feels the squeeze

Corporate credit conditions are also starting to chill. Banks have been pulling back from lending markets, particularly after the failure of Silicon Valley Bank this spring, to prepare for a possible recession.

There’s a widespread expectation that access to credit and credit quality will deteriorate in the coming months. While many Wall Street economists now believe the economy can avoid a recession, fears of a slump “have likely led banks to reduce lending,” Goldman Sachs Chief Economist Jan Hatzius and other analysts wrote in a research note on Tuesday.

Banks have been holding income to the side to account for more losses on their loans, and that has slowed lending even more, the analysts wrote.

Corporate defaults have been climbing. Default rates for riskier borrowers are expected to rise above 4.5 percent over the next year. That’s a sign that businesses are facing more stress with rates elevated. A similar dynamic is visible in the leveraged loan markets that private equity firms use to finance acquisitions of heavily indebted companies.

“Fed hikes are biting harder and harder,” said Apollo Chief Economist Torsten Slok.

No shelter for homebuyers

The highest mortgage rates in more than 20 years — the interest rate on a 30-year fixed mortgage on Thursday surpassed 7.3 percent — have hit would-be home sellers and buyers alike. Homeowners who secured loans at 3 percent interest before the rate hikes are staying put, while buyers facing dramatically higher monthly payments are priced out of the market. Higher rates through 2024 will only extend that dynamic.

Home resales — which typically comprise about 90 percent of the market — dropped more than 15 percent in August from a year earlier, according to the National Association of Realtors.

“It’s a very, very tough environment” in the resale market, said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

The slowdown in sales has kept inventory low and home prices elevated, despite higher mortgage rates. The combination of higher rates and higher prices drove the average monthly principal and interest rate payment for a 30-year mortgage to an all-time high in July, having risen 60 percent from two years earlier.

The “striking thing is you’ve got buyers who can’t afford to buy a home, but you still have tight inventory conditions,” said Rob Dietz, chief economist for the National Association of Home Builders. In “the existing home market, we’ve got about half of the number of homes for sale that we should have.”

Sales of newly constructed homes had been a bright spot, but the government said Tuesday that new home sales fell 8.7 percent in August. Higher interest rates have driven up the cost of construction loans.

“The challenge for the Fed is shelter has been a leading source of consumer inflation,” Dietz said. “By raising interest rates, they actually make it harder to add supply, which can then worsen the shelter inflation component.”

The work-from-home effect

About $1.2 trillion in commercial real estate loans will mature before the end of 2024. As those loans come due, they’ll have to be refinanced at significantly higher rates — just as banks tighten underwriting standards around lending.

The rise of remote work during the pandemic, meanwhile, has led to a surge in office vacancies, reducing income for the owners and pushing down property values.

“A lot of loans are coming due, and the concern is, are you going to have the occupancy and the cash flow coming off the property to actually pay your debt and pay your employees?” said Lisa Pendergast, executive director of the Commercial Real Estate Finance Council. “That may not be the case.”

The delinquency rate for loans packaged into commercial mortgage-backed securities stood at 4.3 percent in August, according to Trepp, a data analytics provider, with office loan delinquencies hitting 5 percent.

“A lot of these loans will start to go sideways, and you’ll see defaults on these loans, and … certainly losses on anybody who’s lending in commercial real estate,” Pendergast said.

Because about 70 percent of bank-held commercial mortgages sit on the balance sheets of regional and smaller lenders, a write-down in commercial loans could spill over into the larger financial system.

More pain in finance

Silicon Valley Bank and other regional lenders failed because they poorly managed the jump in interest rates. The longer borrowing costs stay high, the greater the odds that banks and other financial firms will also collapse.

The biggest risks to the financial system are usually caused by a buildup of debt in fragile sectors. But problems could pop up in unexpected places.

FDIC Chair Martin Gruenberg last week pointed to so-called nonbanks that “play large roles and can present significant risks to the financial system,” including money market mutual funds, hedge funds, online lenders and insurance companies.

“Availability of information about the risks undertaken by a variety of nonbanks is severely lacking,” he said.

The economy’s crown jewel: jobs

As long as people can get jobs and stay employed, they’re able to keep spending. That’s what’s kept economic growth strong even as consumer savings have dwindled. The unemployment rate is still below 4 percent even after the fastest rate-hiking cycle in four decades.

That strength is a big reason why the Fed feels comfortable keeping rates higher. Previously, central bank officials had worried that momentum in the economy might also mean a resurgence of inflation, but now they seem more convinced that prices can cool without requiring a recession.

“It’s not just higher for longer in and of itself, it’s higher for longer because the U.S. macroeconomy is kind of on fire right now,” said Ben Harris, the director of economic studies at the Brookings Institution who recently departed as chief economist at the Treasury Department.

But the more companies begin to spend on debt, the less able they are to hire and retain employees.

Harris thinks the U.S. can avoid a painful downturn but noted that many companies are hoarding workers after spending much of the Covid era unable to properly staff themselves.

“If things turn south quickly, will you start to see that metric pick up really fast? Could you see an acceleration from 3.8 [percent unemployment] to 4.5?” he said. “That’s I think the scenario you worry about, where you see a rapid deterioration in the labor market as the Fed is becoming pretty locked into higher for longer.”