The Federal Reserve raising interest rates is not always the most exciting topic, but it can have a big impact on how you do business.

Last week, the Federal Reserve Chairman said they would be raising interest rates starting early next month. During the Pandemic, the Fed has kept rates down to increase sales and spark economic growth.

While this may not have a huge impact on the average person, it will have a big impact on how many companies do business.

This information will be most helpful to dealerships but can also be helpful in understating the overall picture of Fed interest rates.

Understanding the impact of Federal Reserve interest rate hikes

The reason for the hike is mostly due to inflation. More businesses are getting loans as the economy recovers, which is slowly raising the cost of everyday items. Most of us have seen this happening at our local stores. Raising rates will trickle down to the consumer and help ease those store prices.

Also, the Federal Reserve has seen a recovery in the job market. They point to the 6.4 million jobs added in 2021 as a sign that things are starting to return to pre-Pandemic numbers.

While this may be good for the average person, it may be mixed for businesses.

The Federal Reserve interest rates are tied to things like mortgages and business loans. For now, companies are taking advantage of the low interest rates to get more funding to keep businesses moving.

They Fed doesn’t want to raise rates too soon for fear the companies would not be able to afford the increase.

If rates increase, many businesses may not want to invest in more employees or products.

What can dealers do if interest rates rise?

We don’t really know how much the Federal Reserve is going to raise interest rates, but there are some things that dealers can do to be prepared for the potential added costs.

1. Monitor inventory –

Dealerships have likely been doing this already given the supply shortages we have seen over the past few months. This is an opportunity to start calculating what you are buying and how long it’s taking to get to your business. If inventory is low, the make adjustments. If it costs too much, maybe you don’t want to buy as much product in your next order.

2. Improve communication-

Make sure you are keeping both employees and customers informed about what is going on. Set up a system to ensure they can communicate more quickly and efficiently. If you are having trouble getting a certain product, or are changing the way you buy certain parts, make sure your employees know, and they know what to say to the customer.

3. Make sure the customer can afford it –

If the Fed does raise interest rates, this could have an impact on how people buy things as well. Are they going to get a loan to pay it off? This will be affected by the interest rate hike. Make sure the customer knows what they can expect when they are buying something so there are no surprises when they sign the final paperwork.

When will we see a change from the Fed interest rate hike?

The Federal Reserve won’t raise rates until they meet in March, and even then, its unclear how much it will go up.

Dealerships have been taking advantage of low rates, but now is the time to plan ahead. We have seen a lot of economic recovery, and its important to put communication and economic plans in place to keep your business afloat. Don’t get stuck when interest rates go up!

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