The Federal Reserve’s recent doveish stance has been met with skepticism from some quarters, but a closer look at private credit markets suggests that there may be more to it than meets the eye. According to Federal Reserve Governor Stephen Miran, visible junk debt pricing is an unreliable gauge of risk, and there are signs of trouble brewing in private markets that could have implications for the broader economy.

Miran’s comments on Bloomberg Television highlighted the issue of pay-in-kind, amendments, extensions, and private lenders owning their borrowers as red flags. While direct lenders focused on companies deemed too risky for public markets have seen their floating-rate portfolios boosted by high rates, alt lenders are churning out stellar profits. However, the bigger takeaway for macro traders trying to read credit tea leaves is that junk spreads will grind tighter on lack of supply, as more companies choose to fund privately – regardless of marginal changes in financial conditions.

There are also signs of stress in certain segments of the credit market, such as CCCs, real estate, and consumer lenders. While primary debt markets are booming and most of credit’s doing just fine unless the economy tips into recession, these issues suggest that tighter money may be on the horizon for a small pool of borrowers.

While the Fed’s dovish stance may be met with skepticism by some, the signs of trouble in private credit markets suggest that there may be more to it than meets the eye. As Miran points out, visible junk debt pricing is an unreliable gauge of risk, and investors would do well to keep a close eye on these developments as they could have significant implications for the broader economy.