Written by Ann Safir
(Reuters) – This summer, prospects for Brian Brown’s landscaping business near Lake Tahoe were drying up.
“We put together a bid, called the client, and they were like, ‘Yeah, we’ll look into it.'” A typical client owns luxury real estate in a California resort. Mr. Brown said. Not a “think about it” type of people.
As the days passed, he became increasingly worried about his spending going backwards. As a result, they were left with thin cash reserves for the winter offseason and a smaller-than-usual bookkeeping heading into next summer. He is considering cutting bonuses and laying off one of his six full-time staff.
Then in September, the Fed eased policy, suggesting borrowing costs were trending lower.
“It really gave me a little bit of a breather,” Brown said.
Now that borrowing costs are lower, he hopes he can refinance his current $20,000 monthly loan and use the extra cash flow to build a store in one of his commercial yards.
He hopes that with lower interest rates and the uncertainty of the U.S. presidential election in the rearview mirror, demand for logging and other services will reignite by the spring, allowing for the usual 50 or so seasonal jobs. are.
Overall, “we are cautiously optimistic,” he said.
Mr. Brown’s change of heart is being echoed by businesses across the country as the Federal Reserve moves away from the restrictive policies it imposed to curb inflation.
A survey of Fed banks shows that businesses are becoming more optimistic after a long period of weakness due to the Fed’s interest rate hikes. The Fed’s latest Beige Book, which summarizes economic trends in all 12 regions, also shows lackluster conditions even in most regions, with some improvement in the outlook due to lower interest rates.
Lender’s optimism
Banks are seeing it too.
“We think we are poised for a recovery in lending demand and Animal Spirit is ready to start investing again,” said Bruce Van Thorne, CEO of Citizens Financial Group. spoke. “It would be helpful if the price could be lowered.”
Banks surveyed by the Dallas Fed shortly after the Fed cut rates reported continued declines in lending, but also sharply more bullish outlooks.
A larger share of financial institutions expect business activity and loan demand to increase over the next six months than at any time since 2022, when the Fed began its now-ending rate hike campaign. Additionally, although the study is limited to Texas banks, the Dallas Fed’s Bank Situation Survey often foretells national trends.
the story continues
Fed policymakers will next meet on November 6-7, the two days immediately following the election, and again on December 17-18. The latest forecasts from the two leaders show that opinions are sharply divided over whether they will ultimately lower interest rates at both meetings or at just one meeting.
Mr Brown, the landscaper, said he would wait until interest rates fell at least another half a percentage point before seeking a refinance.
Most analysts now believe the Fed is likely to hit its target by the end of the year, but an unexpected surge in retail sales and a rebound in payroll growth in September have pushed financial markets to We anticipate that it will take a little more time to achieve our goal.
“Glide Pass Down”
After opening her first spa in Fort Mill, South Carolina, with a 10.25% loan from the Small Business Administration last December, Massage Lux franchisee Tracy Thomas received a Fed loan to accelerate expansion. He said he expected a rate cut.
She currently has 400 members who pay between $75 and $149 per month. This month, she added two massage therapists to her current nine-person roster and hired a sixth front-of-house staff member. She plans to get a second franchise next year, but it will be sooner than expected because borrowing will be cheaper.
“Lowering interest rates will help us manage costs and free up more capital for further growth,” he said.
And it’s not just companies planning to borrow that say their outlook will brighten if the Fed cuts rates.
Sabrina Fuller, who runs a house painting business with her daughter Holly in Athens, Georgia, said people are feeling better about the economy because the Fed has cut interest rates with plenty of headroom for the inflation outlook. He says it might be possible.
“It would be great if this loosened up people’s wallets,” she said, but she doesn’t expect to see any major increases until sometime next year. “When people start feeling good about things, they want to spend money on projects.”
Despite near-term uncertainty, nearly all Fed policymakers say they support further reductions in short-term borrowing costs to address slowing inflation and prevent negative labor market impacts. Most expect the policy rate to currently be between 4.75% and 5.5%. % range, between 3% and 3.5% until the end of next year.
“It’s not so much that interest rates have fallen to a certain threshold, but rather that we’re pretty certain that we’re on a downward trajectory,” Huntington Chief Financial Officer Zach Wasserman said. Ta. The bank said earlier this month. “Now that there is more confidence in the market that interest rates will be cut, we are seeing decisions being communicated… and deals are now culminating at a much higher frequency. ”
(Reporting by Ann Saphir; Additional reporting by Saeed Azhar and Nupur Anand; Editing by Dan Burns and Anna Driver)
