November 18, 2016
One of the largest changes in the economy that affects U.S. businesses is the direction of interest rates. Interest rates are typically lowered when the economy is sluggish and the Federal Open Market Committee — the group of Federal Reserve Bank economists who monitor the economy — decides that conditions warrant lowering. Interest rates are usually raised when the economy is picking up or strong, in an attempt to keep the economy from overheating and currency from inflating.
Since the financial crisis of 2008-2009, interest rates have generally been low. In fact, for the past several years, they have been at all-time lows.
What impact does that have on your business?
Well, lower interest rates mean that it’s less expensive to get loans. As a result, it’s easier do the things that a loan might pay for, such as expanding offices, hiring new people, and buying new equipment.
So right now might be a good time to expand.
However, because rates have been historically low for a relatively long period of time, it’s a good idea to keep an eye on the financial and economic news. Anything that stays at a historic low for a long time is bound to go up.
The FOMC usually raises rates gradually — 0.25% to 0.50%. But when they start to climb, they can do so for a while. The FOMC meets multiple times per year, and it can, theoretically, hike rates each time.
So rising interest rates could, in a few years, mean that it’s expensive to get loans. It’s a good idea to keep track of the direction and plan accordingly.