This post has been updated to reflect that the Fed cut rates to a range of 2-2.25% on Wednesday, 7/31/19.
After much anticipation, the Fed cut interest rates by a quarter of a point on Wednesday, July 31st. This turn marks the first rate cut in over a decade, as the Fed attempts to lay the groundwork for continued and ongoing economic growth.
As a result of this rate cut, interest rates have now dropped to the new range of 2-2.25 percent. And it may not be the last, either.
Fed Chairman Jerome Powell said that, while this is not the first rate cut in a planned sequence of rate cuts, the option to cut rates further later on remains. Rather, the Fed’s fluid rate cut policy will adjust based on developments in the global economy, especially U.S. trade tensions.
Previous to yesterday’s rate cut, the Fed’s most recent cut was in July of 2008, during the housing bubble.
The Federal Reserve’s June meeting minutes indicated that a Fed rate cut may be approaching. This landmark cut could be the extra push that small business owners need to reach new horizons.
Trump’s tax regulations have created an environment in which small businesses thrive. But with a bleak global economy, the rate cuts made by Federal Reserve officials would lay the groundwork for continued small business growth.
Officials within the Fed recommended a more accommodating economic policy at home, especially with sky-high growth aspirations in the nation’s economy. This rate cut comes after several rate increases, which Trump has previously voiced his opposition to.
According to minutes recorded during the June meeting, “a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy,” which could come in the wake of international events.
Economists predicted a minor rate change, and were correct. With the new rate cut, which was a quarter of a percentage point, the rate dropped to the new range of 2-2.25%. It will prove extremely beneficial to anyone looking for small business loans.
Rate cuts wouldn’t only impact small business owners, though. These Fed rate cuts will also make home and car purchases more accessible to consumers wary of high interest rates.
Despite the lack of action from June through July, traders were confident the Federal Reserve rate cut would indeed occur. According to the CME Group FedWatch tool, the probability of a rate cut was listed at 100%. While this does not impact the likelihood it will occur, this figure demonstrates one important thing: everyone anticipated this shift.
The Fed had yet to act through June and until the end of July, but reports— specifically the minutes from the June 18th-19th meeting— supported the likelihood of this move. In the minutes, the Fed claimed it would “act as appropriate”. The meeting minutes also noted that key economic officials might examine more data before acting on the rate cut.
Trade tensions with China had been a major factor in building anticipation for these rate drops. Experts claimed that reducing the fed rate will ease market stress in China. With more freedom and breathing room, China may be more able and willing to come to a consensus in the long-running trade war.
Optimistically, the expected rate cut would also help push the inflation rate back to the 2% benchmark.
With this reduction in interest rate, the Fed hopes to benefit the small businesses that have been empowered by Trump’s taxes.
The Fed rate provides guidelines for lenders about the interest rates they should be charging during transactions. As the economy ebbs and flows, these interest rates naturally change. By recommending that lenders charge lower interest rates, the government is placing great faith in continued small business growth.
The Fed has indicated that it will act appropriately in order to provide the right economic environment to support fast-growing American businesses.
With capital available at lower rates, small business owners will have even more flexibility and fewer roadblocks in the way of funding. This funding can help business owners realize growth through several avenues, including expansions, hiring new employees, and more.
This rate cut will reverberate into the pockets of small business owners, too. With the economy in the best position since the 2008 recession, business owners have all of the tools, conditions, and the rates that they need in order to grow. Working capital shortages, expansion loans, and other small business loans are easier than ever to access, and the Fed rate cut is only making it easier.
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!