YOUR BUSINESS AUTHORITY
Springfield, MO
The Federal Reserve conducts the nation’s monetary policy and has three goals set by Congress: First, maximum employment. Second, stable prices. And third, moderate long-term interest rates in the United States. Since 1994, the Fed has been much more transparent about their intentions in these areas and has consistently provided policy statements and news conferences. The federal funds rate has varied from zero to 6.5% in the past 30 years. Following the September 2023 meeting, the federal funds rate is 5.25%-5.5%.
The Fed has stuck to its plan of continuing to increase interest rates to tame inflation. Most analysts were predicting, as recently as in March, the Fed would be forced to let up and cut rates at the first hint of trouble. The Fed is clearly telling us that until inflation is vanquished, they have no choice but to keep at it and have signaled less easing of policy in 2024. Many economists are now predicting there will be only one 25 basis-point rate cut in 2024.
As the reality of higher interest rates hanging around for longer is slowly setting in, many small-business owners are left to wonder how this will impact their operations and the prospect for growth. Over the past decade-plus, using leverage to gain access to additional funds made financial modeling and decision-making rather easy. The threshold for profitability and return on investment is much easier to cross when you can borrow at 4%-6% instead of borrowing at 8%-12%.
There are several important factors that decision-makers in small businesses need to be mindful of over the coming months as higher interest rates linger: inventory, debt service, cash flow and growth projections.
There are a lot of headwinds in the current economy, but your business has a choice. You can either passively accept what is going on around you or you can actively choose to take the opportunities that are in front of you by the horns and develop creative ways to accelerate your business to the next level.
Craig Wright is a financial adviser at Strategic Financial in Springfield. He can be reached at
cwright@thestrategicfinancial.com.
Moseley’s Discount Office Products was purchased; Side Chick opened in Branson; and the Springfield franchise store of NoBaked Cookie Dough changed ownership.