The Federal Reserve is widely expected to start cutting rates in September after 11 rises in 16 months
Inflation is declining, the jobs market is cooling and it looks pretty certain that the Federal Reserve will cut interest rates come September. But will lowering the federal funds rate – the interest rate the Fed charges to its member banks and an important tool for controlling money supply and inflation – have a significant effect on small businesses? Sorry to be the bearer of bad news but not really.
The Fed raised this rate 11 times over 16 months – an unprecedented run – and the subsequent impact has been significant. By combining this rate increase with a reduction in bond purchases, the central bank has managed to decrease its balance sheet by 20% over this period of time and also rein in the nation’s money supply after significant increases. There’s still some ways to go (the Fed’s balance sheet is still significantly higher than pre-pandemic levels) but no one can deny the results of the central bank’s actions.