Get Ready for Higher Interest Rates

The Federal Reserve recently raised its benchmark interest rate by 0.75 percent, the biggest increase since 1994. The interest rate is still low by historical standards, with the fed rate now at 1.75 percent. But there is a lot of talk among economists that the fed rate will likely increase to as much as 3.5 percent in 2022 and possibly 4 percent in 2023. The federal benchmark rate is the rate at which the Federal Reserve loans money to large banks, and the higher interest rates quickly permeate through the economy in the form of higher interest rates for commercial lending, car loans, mortgages, etc. This is a particularly germane issue today because a lot of internet service providers (ISPs) are considering borrowing large amounts of matching funds for broadband grants. Higher interest rates mean larger annual debt payments, and that can easily make the difference between a business plan being feasible and not feasible. For a new project to cash flow, the new customer revenues must be large enough to cover operating expenses plus the cost of debt. The bottom-line advice in a time of increasing interest rates is to make sure that you understand the implications for whatever project you’re thinking of funding.

[Doug Dawson is president of CCG Consulting.]