(Today, Wednesday, the Feds will tweak the rate hike again…)
While the Fed plays a role in setting the benchmark for short-term interest rates, its policies also determine inflation expectations over the long-term. After keeping rates low to help the economy recover, the Fed are on a plan to slowly (hopefully) start raising rates, and today we are due for a new rate hike for sure.
What’s Going On Here?
An influential measure of US dollar borrowing costs has spiked sharply in recent weeks, causing concern among some investors – and potentially hiking interest payments for a huge number of companies (and individuals) around the world.
What Does This Mean?
Weirdly, a certain key short-term interest rate, Libor, has shot much higher than the US Federal Reserve’s target. That usually only happens when the financial system undergoes major stress, like during the 2008 financial crisis – which doesn’t seem to be the case today.
Why Should I Care?
For markets: Borrowing costs have gone up – which tends to hurt profits and, ultimately, the economy.
For you personally: Budgeting for higher interest rates is probably a good idea.
It’s important to understand that higher rates also can have an impact on small businesses in three ways:
1. Business planning (better planning for revenue vs ROI)
2. Cash flow (better control and increase sales returns)
3. Customer spending and saving (consumers will tighten the purses for sure)
How About For startups?
Well, the same above three ways that impact businesses will also have a direct effect on startups overall. It’s going to be even harder to raise money as the interest rate hikes are going to impact the way angel and private investors look at the ROI of investing in startups.