Today, for the first time in over a decade, the U.S. Federal Reserve cut interest rates by a quarter point. The move may seem surprising since the U.S. economy has seen steady growth and the lowest unemployment rate in nearly 50 years. However, a report by Reuters notes that central bankers are concerned about a global economic slowdown and ongoing trade tensions with China. So what does this rate cut mean for your business?
Sallie Krawcheck, the CEO of Ellevest, tells CNBC that a rate cut is, “good for borrowers, bad for savers, and mixed for investors”. Virtually every business, regardless of size or industry, has loans. Typically business loans take years to pay off, but a lower interest rate means you may not carry that debt as long.
If you’re thinking of expanding your business, now is the perfect time to take out a loan and lock in these lower interest rates. If you have significant outstanding debt this could also be a good opportunity to refinance your existing loans, which can help stabilize your finances.
Lower interest rates can also push more customers through your door. These lower rates typically generate more consumer spending, since people are able to borrow more money. When people have more money in their pocket they’re more likely to spend it.
Now for the downside, lower interest rates mean most banks lower annual percentage yields (APY) on savings accounts and CDs. Meaning, you won’t see much of a return there, however, the average rate for APYs is already low at just 0.10% so this might not have a significant impact on your bottom line. However, if you’re worried this could impact your funding the investment app Acorn has outlined 3 simple things you can do to protect your savings when interest rates dip.
And lastly it’s a bit of a mixed bag for investors. Wall Street usually rallies around lower interest rates, but as Krawcheck explains in a CNBC interview, if lower rates are a sign of a slowing economy this could hurt stocks in the long run. Now may be a good time to get more investors interested in your company, but if you’re considering an IPO you may want to proceed cautiously with a possible economic downturn on the horizon.
The Fed may be using lower interest rates as an insurance policy against a slowing economy, so make sure your business is covered as well. Every business needs to have the appropriate insurance coverage, no matter what phase the economy is in.
Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy and manage commercial insurance online. Emily has previously written for TSheets, Fundera, and Ooma.
Editorial note: CoverWallet aims to help small businesses grow and thrive. The opinions or recommendations in this article are those of the editorial team alone. They haven’t been reviewed, approved, or endorsed by any of the companies mentioned above.