UHY LLP Reports: Could Rate Hike Mean Opportunity?

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The Federal Open Market Committee raised the Federal Reserve’s federal funds rate by a quarter percentage point to a target range of 0.75% to 1.00%.

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Today, the Federal Open Market Committee raised the Federal Reserve’s federal funds rate by a quarter percentage point to a target range of 0.75% to 1.00%. This move was highly anticipated – one might even say a forgone conclusion – by the time it was announced. In light of inflation estimates reaching 2% and the February “jobs report” showing unemployment down to 4.7%, nearly every Fed watcher expected the upward movement today.

As for what the future may bring, much of the market expects one to two more rate hikes in 2017, especially in light of expected fiscally-oriented economic growth strategies from the Trump administration. For business owners and consumers, this signals a potential end to the near-zero interest rate environment that has been the norm for most of the last decade.

In light of the changing environment, business owners should start to expect changes in the lending and operating environment. Interestingly, however, while interest rate increases tend to discourage business borrowing, they also have a tendency to increase profit margin for lenders thereby encouraging extension of credit, especially for capital investments and business acquisitions. After all, the federal funds rate was above 5% through much of the 90s and even topped 5% in 2006 and 2007 without lending or business acquisitions ceasing. So while business owners may view the rate hike today (and the anticipated hikes in future months) as a threat, they also present a potential opportunity for those businesses ready to take advantage of the changing environment.

source: https://www.federalreserve.gov/newsevents/press/monetary/20170315a.htm

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Chris Clark
UHY LLP
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