The Federal Reserve made a key move for the first time in terms of interest rate cuts since the outbreak of the hyper-inflationary period following the Covid-19 pandemic. The federal funds rate was cut by half a percentage point on September 18, 2024. This means that the effective Prime Rate will be at 8%, instead of a 30 year high of 8.5%
This is important news for small businesses needing cash: The rate cut may loosen up the lending market, making it easier to borrow. The cost of loans, lines of credit, and other access to money could be lower for small business owners.The Fed did this in the backdrop of declining inflation and a weakening job market. They believe that inflation is getting closer to their 2% target and view risks to the jobs and inflation goals as balanced.With lower interest rates, small businesses might enjoy:
- Chances to expand
- Ability to purchase new equipment
- Options to restructure existing indebtedness on better terms
- Increased spending by consumers may result in improved revenues.
The Fed intends to cut rates more over the next couple of years. What that means for small businesses is that their borrowing costs may be lower. The Federal Reserve is actually worried about the job market, so some kind of economic uncertainty may be ahead. And small business owners are unusually cautious when considering borrowing, taking into account their needs and the overall economic situation. This cut in rates does present opportunities but also reveals that the Fed is more concerned with the slowing economy than it is with slowing inflation. Small business owners must be cognizant and agile regarding this shifting economy.
