The Feds raised interest rates by 0.75% this week. That’s not good news, especially since it comes on the heels of May’s 0.50% gain. Another meeting of the Federal Reserve is scheduled for the end of July and economists predict that interest rates will rise again before the end of the year, by as much as 1.75%.
Why is the Federal Reserve raising interest rates? The rationale behind the decision is that higher borrowing costs will slow inflation by curbing demand.
Federal Reserve raises interest rate by 0.75%
Economists call it a “trickle-down effect,” but to small business owners, it can seem like a deluge. There are two main ways that rising interest rates affect small businesses: the higher rates affect the companies and the higher rates affect their customers.
The effect on small businesses and customers
More difficult credit navigation – Many business loans have variable rates and the monthly payments will be higher. As a result, merchant confidence, as well as vendors and suppliers, may be more cautious about extending credit to small businesses, developing different repayment terms.Credit Card Rates – Interest rates on your business credit card may rise. Customer caution – Customers may withdraw on discretionary spending, especially for luxury items and services. Thinner customer portfolios – Just like small business owners feel like customers. All are faced with much higher costs for petrol and heating oil. Inflation for food and other necessities is approaching 5%. Seniors – Fixed income seniors will have to cut spending and cut costs to keep up with inflation.
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