The Year of Interest Rate
Written By: Bryce Ray
As of November 2nd, The Federal Reserve juast raise interest rates for the sixth time in 2022, citing high and persistent inflation as the primary cause for the increase. Not only is this the sixth time the interest rate has risen, but it is also likely that more increases will continue to happen into 2023. If you’re interested in the specific numbers, stick with me for a bit. This is the fourth 0.75% increase to the target federal funds rate (target rate at which commercial banks borrow and lend their excess reserves to each other overnight) in a row—taking it to 4.00%. This is up significantly from the post COVID 2020 target rate of 0.25%. The Prime Rate (a baseline rate upon which many floating rate loans are negotiated, i.e. Prime + 3.00%) is now at 7.00% and, it is projected to increase to 8.00% in 2023. Those are some big changes from 2020 & 2021.
What do these increases mean? First, it’s probably best to understand why rates have been increasing. The short answer—The Federal Reserve has been increasing interest rates to try and slow down the economy. The longer answer—When rates are higher, it ends up costing more for consumers to secure loans. That results in fewer financings and less spending which ends up slowing down the economy. When the economy slows it generally leads to lower inflation and more supply of goods & services and that is what reduces the pace of price increases to all goods and services.
While the reasoning behind the increases makes sense, the increasing rate environment is new or forgotten territory to many businesses and consumers. For a long while, both have enjoyed historically low rates. Still, the current rates are decent when viewed from the perspective of historical highs.
Below is a 3-year chart looking at rates in 2021, 2022, and the forecasted rates in 2023. As you can see from the chart, forecast rates will continue to increase through the first half of 2023 and then will level off through the later part of the year. So, what does this mean for consumers and businesses?
Interest rates can affect your credit cards, mortgage, loans, inflation, and much more. It is suggested that if you have credit card debt, you should consider paying it down or even looking into transferring the balance with a 0% APR offer. Mortgage rates are also increasing which can make buying a home more difficult but can also slow down the housing market we’ve witnessed lately.
While this can be an unnerving time, especially for our customers in the healthcare industry, as a lender, Med One is here to help. We can help minimize the impact of higher interest rates and inflation for healthcare providers seeking to obtain new equipment. If you have questions about the current rate environment and what you can do to minimize the impact to your business, please reach out to a Med One representative and let us help.