TOP DRAWER ARTICLE

The Fed and Your Business
by
HL Carpenter

Is the US in a recession? Is inflation on the way? Should interest rates be raised or lowered?

Each day, in an attempt to keep the economy flowing in an orderly fashion, the Federal Reserve grabbles with these questions, among others.

Whatever course the Fed takes, the results eventually trickle down to you and the business decisions you make to stay profitable. Keeping your business ahead of the game – or at least even – means keeping an eye on the Fed.

And that means being familiar with Fed speak.

For instance, say you notice interest rates on 30 year bonds have decreased. Then you hear the Fed Chairman report that interest rates on short term debt have increased. Put the two together and you have a scenario that signals a yield curve inversion – which could predict the start of an economic downturn.

The Fed’s next step might be to lower short term interest rates. Since lower rates can make the dollar weaker, foreign goods will most likely become more expensive.

Armed with that knowledge, you can plan to tout your ‘Made in America’ products, advertise more aggressively, and offer temporary price promotions to bring in new customers. You might consider a construction loan while interest rates are low to update assets or renovate your building.

Like most management tools, interpreting Fed speak isn’t a precise science. But monitoring the Fed’s movements can give you one more way to successfully adapt your business to changing economic conditions.

Originally published June 2008.

Last update: December 30, 2009