Business owners uncertain of impact as Fed hikes rates
Higher interest rates could cause some to hold off on expanding.
Local business owners are facing uncertain times as the Federal Reserve has hiked its key interest rate in a bid to battle inflation, and that increase could continue throughout the year.
The decision by the Federal Reserve to raise its benchmark interest rate by 0.75%, the largest bump in nearly 30 years, comes as the nation is battling high inflation. The idea is by raising interest rates, it will decrease the demand that is driving up prices. However, raising that rate could have an impact on many consumer and business loans.
Higher interest rates could cause some businesses to hold off on expanding or growing their operations if that means borrowing more money. Typically, lower interests rates can make more people willing to take out loans to buy goods and services related to their businesses, said Mac Young, the manager of Capital Access for the Springfield Small Business Development Center.
“If you are going to a bank for money, everything is going to rise when the Fed starts raising interest rates. Whether someone is purchasing a car new or used or on the business side of things purchasing vehicles or equipment, rates are going to go up,” Young said.
But, as interests rates are expected to continue to increase, some may be trying to get loans now. It can also be hard to judge the long term impacts of the recent hike since, relative to inflation, current interests rates are still not that high when compared historically, Young added.
More interest rate hikes can be ahead depending on the trend of inflation and that uncertainty is what is causing concern amongst some small business owners. Though some business owners may not take out loans or instead invest their own money into their ventures, rising interests rates could still have an impact on decisions to buy new equipment or real estate or anything that may require additional capital.
That is the case for small
‘If you are going to a bank for money, everything is going to rise when the Fed starts raising interest rates.’ Mac Young manager of Capital Access for the Springfield Small Business
Development Center
business owners such as Dan Freeman, who owns Le Torte Dolci bakery and Salato Deli on North Fountain Avenue in Springfield and Crust & Company at Cohatch along with his wife Lisa. The couple does not anticipate an immediate impact to them due to a rise in interest rates. However, it is unclear what the consequence of those rising rates will be as it depends on how much those rate increase and for how long. Freeman said it could mean that starting new ventures in the short term could be a little less attractive.
Rising interest rates can also have an impact on the real estate market. The local housing market has been described as hot sellers one over the past few years. That was due in part due to low interest rates combined with limited housing stock. Those conditions not only have an impact on the buying and selling of residential properties, but it affects commercial properties as well.
But, Young said that the increase is predicated on combatting high inflation. So the hope is that once inflation comes down, interest rates will also decrease.