NFIB Talks About the Cost of Lending

Date: July 31, 2019

The Federal Reserve has a big impact on the health of the economy. Simply put, your ability to borrow money to fund capital improvements and expansion is tied to the interest rate decisions made by the Fed’s Federal Open Market Committee.

Is the Fed doing a good job at communicating what it’s doing? The central bank turned to Holly Wade, NFIB’s Director of Research & Policy Analysis, to help answer that question. She was invited recently to speak on a panel at the central bank’s monetary policy conference in Chicago.

Holly described NFIB’s research findings that suggest NFIB members tend not to be close Fed watchers, or change course on big investment decisions based on slight shifts in the short-term lending rates. Instead, once the moves made in Washington begin to affect the short- and long-term loan rates that small businesses end up paying, it’s a different story. Small business job creators are far more price competitive when shopping for credit.

“It’s the return on investment on the project that they’re looking to do that is the main driver for small business owners,” Holly explained.

The Fed uses its influence on interest rates to fulfill its dual mission of keeping prices stable while maximizing employment. In this strong economy, Holly noted, many small businesses prefer to use earnings and profit to fund projects, rather than by taking out a loan. They also want inflation to be predictable so that they can plan ahead effectively.

It’s important for policymakers to keep the needs of small businesses – the backbone of the economy –in the forefront when making calls that impact business decisions. Most of the central bank’s board of governors and bank presidents, including Chairman of the Federal Reserve Jerome “Jay” Powell and staff were in the audience.  The panel’s moderator, Eric Rosengren, is a voting member of the FOMC as CEO of the Federal Reserve Bank of Boston. NFIB will keep advancing the interests of small business wherever we can make a difference.

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