How Rising Interest Rates Could Affect Small Businesses
What Rising Interest Rate Hikes Could Mean For Small Businesses
For the first time in more than three years, the Federal Reserve has approved its first interest rate increase. The goal? To get a handle on inflation – which is at its highest annual rate in 40 years – without sacrificing the growth of the economy. In addition, the rate of income is lagging more than ever in the United States which could result in a potential stagflation period that could be detrimental to everyone.
The benchmark interest rate, which has been hovering near zero since the early days of the pandemic, will now go up by a quarter percentage point, bringing the rate into the range of .25 percent – .5 percent. But that’s only the beginning of the story. The Federal Open Market Committee has six more meetings slated for 2022 and is planning to increase rates each time. That means by the end of the year, interest rates could end up at 1.9 percent. Plus, three more rate increases are planned for 2023.
“When you have inflation along with slow economic growth, that is called stagflation and it can potentially spiral us into a recession,” said Patrick Moraites, a partner and vice president at Tampa-based Axis Group.
Therefore, there’s little wonder that policymakers have downgraded their economic growth forecasts for 2022 from 4 percent to just 2.8 percent.
And although the real estate market is booming, Moraites noted, the cost of goods and supplies such as steel and lumber are also reaching all-time highs. This means that we’re likely to see construction and development slow and when interest rates do increase, people won’t be able to borrow at the same level they were able to borrow before because high interest rates make loans more expensive.
Moraites predicts that all of these factors are likely to play a pivotal role in how businesses operate and strategize in the near future, which could mean lateral movement of middle to upper management and mass retraining to stay afloat and lean.
“Payroll levels really haven’t changed to be able to keep up with the inflation,” Moraites said. “We may end up seeing the labor shortage go away because some companies may have to lay off employees in order to sustain themselves through what seems to be a foreseeable downturn.”
As companies look for ways to navigate the rough waters ahead, they may want to consider hiring a PEO. A PEO, or Professional Employer Organization, is a single source provider of integrated services that allows business owners to outsource a number of their administrative and employee-related functions. To read more about them, click here.
“It’s always good to have predictable cash flow and a PEO can put you in that environment because you’re not having to come out-of-pocket up front with insurance deposits and premiums,” Moraites said. “Essentially, your total employee burden costs can be stabilized by hiring a PEO. These days, that’s a very good thing.”
To find out whether hiring a PEO makes sense for your company, turn to the experts at Axis Group. They’re dedicated to providing you with the guidance you need to make the right decision. Contact Axis Group today to get started.