May’s surprisingly strong jobs report could soon feel like a double-edged sword for borrowers struggling to keep up with inflation and their bills.

The artificial-intelligence race has catapulted stocks to fresh highs this year and kept credit markets on fire — but bond investors are increasingly worrying about the people being left behind.

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“The lower-income cohorts, I can see them struggling,” said Tracy Chen, a portfolio manager at Brandywine Global who specializes in buying bonds backed by consumer and corporate debt.

Younger borrowers facing student-loan repayments and a brutal entry-level jobs market are struggling too, she noted.

Yet Chen said Friday that the Federal Reserve is already behind the curve on hiking interest rates. She thinks rate hikes are needed even if it means more pressure on households already squeezed by bills, gas prices and trips to the grocery store.

“The job market is stabilizing,” Chen told MarketWatch. “We know that interest rates are higher, but financial conditions are still loose.”

Stress among lower-income households often shows up in rising subprime auto-loan delinquencies, which this year rose above 10% as a share of outstanding loan balances, according to Moody’s Analytics.

Some improvements in delinquencies arrived this spring with the year’s bigger tax refunds. But that one-time financial boost will fade, signaling more trouble could be brewing if inflation, already near 4%, keeps rising unchecked.

“The American consumer writ large is fragile, and under increasing financial pressure,” said Mark Zandi, chief economist at Moody’s Analytics. “There isn’t a cliff event,” he said, adding that it’s a “corrosive” process that slowly wears down the ability of households to spend and keep up on their debts.

Read: Americans are using buy-now-pay-later for gas and groceries, showing just how expensive daily necessities are now

Fraud may have toppled subprime auto lender Tricolor last year, but other finance companies that sell bonds backed by their car loans also faltered. American Car Center and US Auto Sales have also gone bankrupt since 2022, when inflation and rates were both rising, according to a tally from Moody’s Ratings. Higher rates can trigger default waves that might jeopardize more lenders.