Economists globally are paying close attention to the Federal Reserve’s focus on “further gradual increases in the federal funds rate” in 2018.
According to Bloomberg reports, Fed officials announced three tentative interest rate increases for the year as part of quarterly projections in December. They reiterated that plan at the end of January. However, Bloomberg’s survey of 29 respondents watching the global market estimated an upper-bound federal funds rate target of 2.5 percent by year-end. That median estimate, if true, could stem from up to four interest rate increases in 2018.
The central bank’s next policy-making meeting is in mid-March, where respondents to the survey anticipate another announced rate increase. Meanwhile, taxpayers are witnessing a potential increase in their paychecks this month while companies are planning for the benefits of a flat corporate tax in 2018. With the recent passage of a $300 billion government spending package and President Trump’s announcement of infrastructure improvements, economists can’t help but predict spending and growth (inflation).
What does this mean for your company? If you are thinking about financing for new equipment purchases or other capital investment, you might want to do it sooner in the year than later. Rising interest rates may also impact business transitions and make it more expensive for buyers to finance transactions. On the positive side, foundations and endowments will see an uptick in earned income.
For other questions regarding the anticipated rise in interest rates and its impact on your company’s cash flow, spending and borrowing, talk to us at LvHJ.