Part 3: Interest Rates, Financing Cost, & Impacts for the Trades

Interest Rates are a policy tool used by the Federal Reserve to manage inflation rates within the US. They do this by managing the Federal Funds Rate (FFR), which defines the overnight intrabank lending rate. All other rates (mortgage, auto, etc.) are priced based on this rate.

Examining the above chart, we can see the change in the Federal Funds Rate (represented via the blue line) over time. It has been on an upward trajectory since the first half of 2022, reaching levels not seen since 2007.

These drastic increases were a direct response by the Federal Reserve to combat inflation, which peaked in Q1 2022 (as can be seen in the prior chart here). The continued acceleration of interest rates is a byproduct of the stickiness and persistence of that inflation.

Obviously, interest rate policy is a blunt instrument with many consequences. For us in the Trades, it has led to skyrocketing financing costs for our customers, along with tightening of credit terms across the board.

The silver lining here is that the rate of interest rate hikes from the Federal Reserve has slowed and appears to be flattening. This potentially means that even though rates are currently elevated, they may not substantially increase from this point. And, as history has shown us, this gives the Federal Reserve some room to eventually cut rates if the broader economy starts to slow down.

In our next email, we will delve deeper into another critical aspect impacting the financial landscape. Stay tuned.

If you have any questions or concerns feel free to shoot me an email, visit our site @ www.ServiceProCFO.com, or schedule a call with us here

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