The Fed Raising Interest Rates
First off, none of this is financial advice, I’m just a marketing guy who wants to give everyone a more holistic perspective to manage their business and plan out its future. Over the course of five meetings in the past year, the Fed has raised interest rates 5 separate times, the most active they’ve been since 2005, bringing the current rate to 3-3.25%. And they’re not done yet! The Feds are looking to increase the interest rate to 4.25% by the end of the year, bringing the total rate increase in 2022 to over 3 percent, the highest increase since the 80s in a single year. This is being done to curb inflation, and it almost certainly will, but the real question, however, is what this means for SMBs (Small to Medium sized Businesses).
Will Inflation Go Back Down?
The short answer is, yeah, most likely. But it may not necessarily be so great in the meantime. Unfortunately, this current round of inflation was largely the result of increased demand from consumers, a ‘tight’ job market (lots of open jobs and low numbers of available workers), and crippled supply lines due to shutdowns from COVID. The Feds are only equipped with the tools to solve the first two of those issues, meaning that consumers and homeowners will be forced to pay the lion’s share in terms of economic pain to lower demand. Businesses will not be able to afford higher wage requests from employees, and consumers will not be able to purchase homes or other large purchases as easily, curbing spending and hopefully the prices of goods and employees. However, this does come with the risk of causing a recession, leading to high unemployment rates and lower incomes for families that will likely trail behind prices as the supply chain issues will likely still be unsolved. Small businesses that work with consumers or are paid by businesses that work with consumers will likely face reduced spending in the future.
What Does that Mean for SMBs?
Small to medium businesses are most likely going to take a financial hit in the next 6-12 months, which is when recessions typically kick in after interest rates are raised. Consumers will only want to spend money on necessities, meaning that SMBs are going to have to work extra hard to show customers the value of their products and services. There are two main strategies for dealing with the expected decline in revenue; increase marketing efforts, and cut back on overhead spending. The best solution is likely a combination of both, with more conscientious spending overall, and a refocus of marketing efforts on strategies that already have proven and well-documented ROIs. If you need help doing that, give us a call!