I thought this article from the New York Times was very interesting, especially if you’re a business planning to expand. The Federal Reserve has been warning of an interest rate increase for quite some time now, but this latest prediction of making a move at the end of the year might hold more substance.
Labor and Inflation Complicate Fed’s Plans to Raise Rates
If history is any indication, election years have typically resulted in a lack of aggressive action by the Federal Reserve, but with the election ending in November, this latest announcement has my attention.
What does this mean for your business? An increase in the Fed Funds rate will result in an increase in commercial bank’s prime lending rate. The prime lending rate is a widely used index in financing operating lines of credit, inventory, credit cards, and Home Equity lines. If an increase occurs, it will most likely be a 0.25% increase, similar to last year’s increase in December 2015. This should be on your radar in forecasting your interest expense when budgeting for 2017.
If your business is considering expansion, this action plays another role in your planning. The commercial real estate and equipment loan rates remain extremely low, but a short term increase will most likely influence long term rates in the near future. So if you’re considering expansion, there is still a window of opportunity before this takes place.
Should you have any questions in regard to this information, or if you want to discuss any of Richwood Bank’s business products, feel free to contact me at 740-943-2317.