The FED Rate Cut & Unemployment - How Your Business Can Navigate
This past Wednesday the Federal Reserve convened as scheduled. The meeting resulted in a quarter bpts (0.25%) prime interest rate cut, the second in as many meetings, lowering the rate of interest for banks to borrow money from each other. The federal funds rate now stands between 3.75% and 4%, its lowest level since 2022.The news sent markets upward, the S&P 500 hitting a record high.
This action by the FED creates a pathway for future interest rates on borrowing from credit cards, mortgages and business loans to lower and afford individuals and businesses with current lines of credit the confidence to borrow more or refinance existing loans with the prospect of receiving more favorable rates in the near future.
FED chair Jerome Powell gave his scheduled speech afterward, which has drawn some debate and consternation from economists. Powell stated the cuts were in response to previous data as the government remains shut down various economic data for the past month has not been able to be retrieved. Powell also stated a further cut during the December meeting is unlikely. The FED seemingly not considering the recent heavy amounts of layoffs across many different business sectors, the majority of which emanating from retail and from roles at management level and above. Target, Amazon, USPS and Meta led the way in layoffs in the tens of thousands sparking more uncertainty among employees and consumers as they head into the holiday season.
This topic is indeed of interest and for many Americans and economists, raising some alarm bells. It is strange however the FED chair seemingly glossing over these recent events in the field of employment by stating further economic relief from monetary policy the remainder of 2025 is bleak at best.
A counter argument is the recent mass layoffs is that they were done in advance of what they were scheduled for the remaining quarter and are therefore, in a sense, already “pricing them in” to the current unemployment rate.
As unemployment ticks up to 4.3% this shake up in the corporate world has consumers treading lightly, with 64% of consumers polled by the University of Michigan in October said they expected higher unemployment over the next 12 months, compared with 32% in October 2024. The result: less spending.
One of the big headlines last week which draws attention to this was restaurant chain Chipotle missing earnings for yet another quarter, sending the stock down 16%. The CEO Scott Boatwright noted in an interview with CNBC that the lower earnings were indeed due to a decrease in foot traffic. As consumers try to keep in check disposable income, the first step, dining out less.
So how can your business perform at an optimum level during a point of economic uncertainty particularly when there is a spike in unemployment? Work to put an emphasis on providing value.
The American consumer has not run out of cash in this circumstance; news of unemployment and layoffs instead urge the public to be smart about their spending decisions. If you can prove the product or service, you are selling is worth its weight to the potential buyer there lies the avenue to keep your company’s revenue consistent.
A common misconception small business owners have is that a product in itself provides value, whereas it’s the application or use of said product where a consumer realizes its value. Sell the vision, experience and future success/longevity attained from the purchase of your brand and your business will be able to navigate the ebb and flow of the ever-changing economy.
To gain personalized guidance for your business on this topic and others contact us.
- Vince Calace
Founder - Venture Business Development