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Interest Rates and Recession Risks: What do these mean for businesses heading into 2024?

 

After an aggressive campaign of rate hikes to tame inflation, the Fed held interest rates steady in their December 2023 meeting and indicated that there would be three rate cuts in 2024.  The good news is that inflation is headed in the right direction and that rates are likely to move lower. 

Although that may be seen as a positive, it indicates that demand is expected to slow as well.  The downside risk is the economy could slow too much and we enter a recession instead of achieving the soft landing that we all hope for.  The Fed is trying to “thread the needle,” meaning they are working to find a precise and delicate balance of gradually cool inflation without spurring a recession. 

With the Prime rate at a 22-year high and a potential for an economic slowdown, it is a good time for businesses to retrench and bolster their balance sheets.  They can do this by moderating debt levels in order to maintain flexibility for when opportunities arise.  Businesses will also be well-served to monitor back logs in order to quickly shift resources.

Given the tight rope the Fed is walking, it is certainly possible for rates to stay higher for longer. Maintaining financial flexibility is paramount when uncertainty abounds.   

Originally published in  Small Business Monthly's January's issue of 2024 by Pete Zeiser, President - Chesterfield Commercial at Midwest BankCentre.