June 21, 2019

Steady Interest Rates, But Still Uncertainty

Steady Interest Rates, But Still Uncertainty

This week, all eyes were on the Federal Reserve Board’s Federal Open Market Committee because they held their monthly meeting with a focus on interest rates. Fortunately, they held their benchmark interest rate steady. However, they did indicate they would cut rates in the months ahead if the economic outlook weakens. Next week is a big week, too, with the meeting of presidents from around the world at the G20 in Japan. Depending on how that meeting goes, the Fed could cut rates in July.

So things are good…for now…

While the news prompted a slight gain in the stock market, the more meaningful and sustainable reality is that uncertainty is not good for business. When people feel confident in the economy, they buy more and do more. Right now, the perception is that the economy is good – but there are multiple, unpredictable factors that could change this perception quickly. Economic uncertainty leads to conservative decisions, and that means less risk-taking. Companies are more likely to hire when the economy is stable, ahead of the curve. If we are expecting an economic contraction, hiring contracts.

The trickle-down effect of the interest rate decision is apparent. Some people hoped that cutting interest rates might counteract some of the effects of the ongoing trade war with China. But that won’t be enough to quell concern about uncertainty. As discussed in my May 31 column, the higher U.S. tariffs have already been adding to the cost of goods for many businesses, a concern for many of our clients at Marcum. It now looks like we’ll be seeing more of the same for the immediate future.

For now, we’ll have to wait until July to see what the Fed’s next move will be. In the meantime, I encourage CEOs, entrepreneurs and other business leaders to stay nimble. Keep your overhead low and capacity flexible. Evaluate and shore up your debt situation. The best time to find the best options is always when the economy is humming – seize the moment. If you’re looking for creative ideas, pick up the phone or shoot an email to your Marcum professional. We’re always happy to help clients strategize.

As long-time readers know, I take a break from writing this column in July and August every year, so next week will be my last post until after Labor Day. It’ll be interesting to see what the Fed does between now and then and how the economy reacts. As the saying goes, we’re living in interesting times, and I’m betting there will be plenty of food for thought for business leaders to consider between now and when I resume writing in September. By then, we will have the results of our next Marcum-Hofstra CEO Survey, which will give us a good read on how middle-market CEOs’ outlook may have changed.

Have a great weekend, everyone.