Disclaimer: Not a political post.
I enjoy writing this monthly blog post; in this crazy hectic environment, it forces me to sit down, focus on a topic that’s important to me, and concisely transcribe the headlines.
Today I dive into possibly the most important topic since this blog started and that is last week’s interest rate cut by the Fed.
By way of background: Starting in March 2020 the US Federal Reserve quickly and steadily increased its target interest rates (Fed Funds) to thwart inflation caused by COVID-related supply-chain and labor-market disruptions. Four years later they appear to have met their inflation-rate goal and subsequently took the first step to restore a moderate rate regime, starting with a decrease of 50bps (0.5%), taking the target rate down to 4.75-5%. Additionally, they signaled their plans to reduce the rate by another 50bps by the end of the year, another 100bps in 2025 and finally 50bps more in 2026. Core inflation is coming in at 2.6% for 2024 and projected to be around 2.2% in 2025. GDP is expected to grow at about 2% next year and unemployment will likely stay in the 4-4.5% range.
By all measures (see disclaimer above), this is the result of a masterfully executed plan orchestrated by Jerome Powell and Janet Yellen. It is the first time since the ‘90s that inflation has been tamed without putting the economy into a recession.
The immediate tangible impact is lower interest rates and monthly payments to our SBA borrowers, present and future. The rates on SBA 7a loans are tied to the prime rate, which is now lower by 0.5%. It represents a significant savings which business owners can use to fund growth, invest in working capital, acquire real estate and pay down debt.
Even more important are the less tangible (but real) psychological aspects of the move. Three things were on business owners’ minds over the past couple of years: inflation, tight labor market, and high interest rates. With this week’s move, the Fed has broadcasted that these factors are all being addressed, without an economic slowdown.
This has me looking into the rest of the year and also into the next couple of years. We are seeing a significant uptick in activity (meaning SBA loan requests) largely due to optimism and our own marketing efforts and partly aided by other lenders having pulled back or exited SBA lending. The interest rate environment is giving me additional confidence to invest, and my team and I are looking forward to meeting you! Let’s talk! You can find a listing of our nationwide SBA Business Development Officers here: https://gulfcoastsba.com/our-people/.