Businesses Await Results of First Interest Hike in More Than Three Years

With inflation a major concern among both consumers and businesses, financial experts said it was only a matter of time before the Federal Reserve (Fed) raised interest rates. That prediction came true last week when the Fed approved a 0.25 percentage point rate hike, the first increase since December 2018, CNBC reported.

The increase will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of borrowing and credit. Along with the current rate hikes, the Federal Open Market Committee is also planning for increases at each of the six remaining meetings this year, reaching a consensus funds rate of 1.9% by year’s end. The committee expects three more hikes in 2023, then none the following year.

The committee also increased its inflation estimates, predicting the personal consumption expenditures price index, excluding food and energy, to reflect 4.1% growth this year, compared with the 2.7% projection in December 2021. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” a statement from the committee read.

Businesses with outstanding loans may see their rates rise soon, depending on the types of loans they carry. Financial tech company NAV offers the following advice to help small businesses cope with rising interest rates:

• Secure financing as soon as possible as waiting too long may mean settling for higher-cost financing or even potentially not qualifying at all
• Pay down high-rate credit card debt if possible or refinance it with a low-rate credit card balance transfer or a term loan
• Consider refinancing a variable-rate loan with a fixed-rate loan
• Focus on financial health as the lowest rates often go to financially healthy borrowers.