The chairman of the Federal Reserve Board is expected to raise interest rates today. Business thinks that this is a bad idea. Why and what effect will this decision have on the business?
The main responsibility of the Federal Reserve board is to ensure the finances of a nation are stable. This is done by raising or lowering interest rates. Interest rates are raised when the economy starts doing well. If otherwise, the rates are lowered for the sake of the businesses.
First answer
Raising interest rates today will be bad for the business since it will make the economy of a nation move slowly. A slow economy is characterized by high interest rates. The major consequence of this is that less money will be available for borrowing, or people will shy away from borrowing due to the high interest rates. This will in turn have an effect on businesses, since the will be less funds available for people to make purchases, as well as hire people to work for them. Low sales result to poor profits. Poor profits are the first indicator that a business is not doing well.
Second Answer
High interest rates result to a slow economy. A slow economy has got a number of disadvantages businesses. One such disadvantage is that businesses are no longer able to borrow much money from financial institutions, due to the rates charged on loans. These loans are used to expand the business or invest into other into other business ventures. Businesses will therefore, play out strategies to cut down on their costs by spending less and not hiring more people to work for them. This would result to a slow economy which could lead to a recession.
