This afternoon the Federal Reserve announced that it would raise interest rates another quarter of a point, to 1.5%. This is the third rate hike of 2017 and the fifth since the 2009 financial crisis, indicating the Fed’s confidence in the strength of the economy. In its statement, the Fed cited continued declines in the unemployment rate, growth in household spending, steady economic expansion overall, and a pick up in business fixed investment as reasons for optimism heading into 2018. The announcement comes just after reports that inflation has slowed again from 1.7% in October to 1.6% in November. The Fed maintains that its objectives are 2% inflation and maximum employment.
What does this mean for the trucking industry? The short answer is that the interest rates you pay on debt are about to go up. “Everything from credit card debt, to new debt on equipment, old variable rate debt, and factoring will see rates go up,” said Daniel Pickett, CFA, chief data scientist at TransRisk. “Even lease rates should get more expensive.”
In one sense it’s important for the Fed to raise interest rates away from 0% while the economy is doing well, so that it can make moves to lower rates and encourage liquidity when the economy slows down. If rates stay at 0% or just above it, as they were from 2009 through the end of 2015, the government would be out of options in a new recession. Oddly, different parts of the federal government appear to be at economic cross-purposes—it seems as though the Fed is cautiously trying to modulate sustainable growth and prepare for the next downturn, but Congress, with its big tax cut set for a vote next week, is looking to pump over a trillion dollars of stimulus into the economy.
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.