August 20, 2021

Inflation, Higher Fed Rate Could Trigger Tighter Credit

Advice: Check Out Lending Options Now

Some economic forecasts are pointing to potential inflationary times, which could tighten lines of credit.

In July, the Federal Reserve decided to hold rates steady and said the U.S. economy is recovering despite Covid-19 concerns. Fed Chair Jerome Powell said that the U.S. economy is still a good deal away from making “substantial further progress” toward stable prices and maximum employment, reports Bloomberg News.

The current federal funds rate stands at 0.25%.

But according to CNBC, the futures market shows investors increasingly see federal funds rate hikes by late 2022. Following the Fed’s July decision, odds increased for at least one rate hike by the central bank by the end of 2022.

Futures trading on the Chicago Mercantile Exchange (CME) now indicate a 64% chance of one or more rate hikes in December 2022.

According to Chairman Powell, inflation is the key variable. He and other senior Fed officials argue the spike is likely to be temporary, but they expect to watch developments and could reassess next moves if longer-term inflation expectations drift higher.

Tighter monetary policy, in the form of raising the federal funds rate, also known as the discount rate, at which banks lend to each other, results in restricted credit via higher interest rates at the business as well as the consumer level.

This is an appropriate time for businesses to begin to investigate alternative lending resources before inflation drives interest rates up and traditional lending sources become less attractive, or worse, unavailable to them.

Alternative lenders such as Great Lakes Business Credit provides business owners a steady hand in funding start-ups, expansions, and other operational expenses during ever-changing economic conditions. Contact us to learn how our lending model can solve even the toughest challenge.