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How Rising Interest Rates Affect Business Operations |
Article details provided by Jamie Dewese, Wealth Management Advisor Changing interest rates can influence your short- and long-term business decisions.Understanding the potential effects of high interest rates can help you keep your business operation flexible and competitive during economic upheaval. Interest rate fluctuations are often the direct result of policies enacted by the Federal Reserve and Central Bank based on demand for goods and services. Higher demand over time tends to result in the increased costs which is inflation, so the Federal Reserve raises interest rates to restrict currency with the ultimate goal of lowering inflation. High interest rates may result in:
However, according to Jamie Dewese, wealth management advisor, it can take time for your business to experience the effects of changing interest rates and inflation. Cash flow management is crucial as it protects operational continuity, supports debt repayment and builds cash reserves. It’s common to maintain higher cash reserves when interest rates are low since interest-bearing accounts offer minimal return. Conversely, you may consider investing cash into a money market account during a high-interest-rate environment to generate a better return. It’s also important to reduce debt as much as possible when interest rates increase. The cost of borrowing grows alongside interest rates, so you may find it more expensive to finance projects and growth during times of high interest, Jamie said. You Can Mitigate Risks By:
Monitoring inflation trends, Federal Reserve policies and energy policies can also help you forecast the impact of interest rates on your business operations. Contact our Wealth Management Team to learn more about managing your business's wealth during interest fluctuations. Investment products and services may lose value, are not a deposit, are not guaranteed by any financial institution, and are not FDIC insured or insured by any government agency. |