By: ProcurementIQ Analyst, Kevin Young
US Federal Reserve announced its first interest-rate hike cycle in nearly a decade.
LOS ANGELES – December 16, 2015 –In meetings on Tuesday and Wednesday of this week, members of the Federal Open Market Committee (FOMC) voted to raise the federal funds rate, the interest rate at which major private banks can exchange reserves at the central bank, by 25 basis points. Although recent turmoil in Asian markets and a global contraction in commodity prices had created some uncertainty regarding fiscal policy, strong performance in domestic labor markets, improving consumer spending and a myriad of other positive economic factors ultimately persuaded board members to raise rates.
The FOMC’s move marks the first increase in the federal funds rate since June of 2006. In the three years to 2015, low interest rates have contributed to the revival of the residential housing and commercial property markets. While some are concerned that a 0.25% increase will encourage decelerating performance in markets that heavily rely on financing (such as construction and new home sales), the interest rate is still low compared to historical standards.
While the FOMC did not explicitly indicate a rate schedule going forward, any rise in rates will likely contribute to price increases for services like Equipment Financing, as demand is closely related to interest rates. Moreover, there is potential for a larger move towards leasing and rental in lieu of capital purchases as loan interest payments become more expensive with rising rates. The prices of Fleet Vehicle Leasing, Vehicle Rental and Industrial Facility Rental are all forecast to increase moderately in the three years to 2018, but price growth for such services could be compounded if the FOMC continues to raise rates in upcoming FOMC meetings. In any case, equity markets, Fortune 500 companies and individual investors alike will keep a close eye on the Federal Reserve in the coming months.