As anticipated, for the first time in more than three years, The Federal Reserve raised interest rates to tackle inflation signaling strain could be headed for small businesses.
Americans are already feeling the strain at the gas pump and at the grocery store as inflation reaches a 40-year high. On Wednesday, March 16, Federal Reserve Chairman Jerome Powell announced interest rates will be raised .25% to combat inflation and they could be raised six more times before the year ends.
While lowering inflation will no doubt help the economy, the rate hike will affect businesses with debt as higher loan rates, higher credit card rates and slowed growth are on the way.
What does this mean for your business?
- Your credit card rates are going to rise.
- Depending on the type of loans you have expect to pay more too.
- If you’re looking to get a new loan, your chances for approval may not be promised as banks will become more selective.
- If you’ve got cash stashed in a savings account you may see some more money coming in, but not much
What should do you do?
1. Get rid of your variable interest rate
If you have a variable interest rate look into refinancing to a fixed rate to stabilize. Rates may be a little higher, but that new rate cannot be increased in the future.
2. Pay down your business credit cards
Pay off outstanding credit card debt now as credit card rates will be the first to rise. If you can’t pay it off look into transferring your balance to a card with a lower rate.
3. Buckle down
Get prepared for a slower season, a side-effect of higher interest rates is lower spending. Some economists recommend testing your business now to see if you can withstand fewer purchases.
These rate hikes from the government are aimed to cool down a hot economy and avoid a possible recession. Luckily, officials said the chances of the economy falling into a recession are low.
“The probability of a recession within the next year is not particularly elevated,” Powell said. “All signs are that this is a strong economy.”
In February 2022, inflation reached nearly 7.9% the highest since 1982. Officials expect the year to end with inflation still elevated, but down to just more than 4.3%. However, it will still be a while to get the economy near 2%, the federal government’s targeted inflation rate.
“Inflation is likely to take longer to return to our price stability goal than previously expected,” Powell said.
Powell added the rates are expected to fall to 2.7% next year and 2.3% in 2024.