From SCORE Richmond, by Doug Carlton
By the end of 2018, it is expected that the Federal Reserve will have raised rates by a full point – and another four rate hikes are expected for 2019. Recently Boston Federal Reserve President Eric Rosengren hinted that because the economy is still very strong that interest rates might need to become a “little more restrictive.” Federal Reserve speaks for don’t assume anything.
What might that mean for your business? Does it mean anything? How much do you use your credit card for your business? By the end of next year, the rate on your card is likely to be at least 2% higher than a year ago. If nothing else, rising interest rates may increase your cost of doing business, putting upward pressure on your prices. Higher prices, lower sales, perhaps. Other things that you buy may become more expensive for any number of reasons. If you can’t match increasing costs with your prices it could lead to lower profits.
It may have no effect at all, but by any chance are any of your customers or suppliers likely to be affected by the now-you-see-them-now-you-don’t tariffs? Probably not, and because you know who your target customers are and why they buy from you, you figure that you have got any tariff-related issues under control. But because that landscape keeps changing, it’s important to stay vigilant. And the tariff noises are a big macro issue that can affect a lot of things. But there are a lot of little things happening here and there that indicate some hesitancy in the continued growth of the economy.
Additionally, interest rates are going up which means bank lending is going to tighten. The economy is booming, but behind the curtain, costs are inexorably rising as a result of the tariffs and the restrictions put in place by the Federal Reserve.