Updated: Oct 27, 2022
If there's one organization that business owners should be keeping an eye on, it's the Federal Reserve. Despite optimistic claims by Fed chairman Jerome Powell, the worst is yet to come for businesses. In this blog post, we'll take a closer look at the Fed's policies and how they're likely to affect your bottom line. We'll also offer some tips for preparing for tough times ahead. So read on to find out why the Fed is bad news for business owners and what you can do to protect yourself.
Fed Plans to Increase Interest
The Fed plans to increase in interest rates up by another .5% to .75% bump in September. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said.
Tightening of Capital
This could be disastrous for businesses, as higher interest rates make it more expensive to borrow money. This could lead to less investment, as businesses put off expansion plans or new hiring. And if growth slows, that could mean layoffs and cost-cutting measures. Unfortunately, this could be the best-case scenario. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.” Powell continued.
Better Job Market = Worse Outcome
“The labor market has been tight for some time, and as people who had given up looking for work come back into the labor force and find jobs, wage growth will pick up,” Powell said. “As that happens, inflation will rise.” A look at the daily employment taxes withheld from the US Treasury data, we can see an 11% improvement from July to August — if the Fed is correct and labor markets are improving — then the worst is yet to come.
So, what can business owners do to prepare for tough times ahead?
1. Review your expenses and cut costs where possible.
2. Consider delaying expansion plans or new hiring.
3. Make sure you have a strong cash reserve to weather any downturn.
4. Stay informed and stay flexible. Keep an eye on the Fed's policies and be ready to adjust your plans accordingly.
5. Talk to your financial advisor. They can offer guidance work you through a financial plan.
The Federal Reserve is expecting the economy to worsen. They plan on increasing interest rates in attempts to curb inflation, but things could get worse if employment numbers continue to improve. If you are feeling overwhelmed by all of this or need a financial advisor to help prepare for any scenario, contact GFT today. We can assist with financial planning and analysis to keep your business afloat during these turbulent times.