Prairie Middle Market Perspective Fall 2023

Interest rates are higher than before and now the hot topic in business conversation. After more than a decade of the Fed’s post “Great Recession” near zero interest rate policy, we are suddenly in a new economic territory. The Fed has hiked interest rates 11 times, producing an aggregate increase of 550 basis points in less than 18 months. This has resulted in the Prime Rate currently at an eye popping 8.5%.

Even with these Fed inflation fighting interest rate hikes, inflation has recently reversed its downward trend and moved a little higher. The recently released September CPI report put annualized inflation at 3.7%, equal to August’s 3.7% inflation and up from a low of 3.0% in June 2023. These values are well above the Fed’s 2.0% target and show how difficult it is to reduce inflation once it becomes embedded in the economy. Making matters worse, the UAW and other labor strikes coupled with the wars in Ukraine and now the Middle East could affect food and energy prices leading to even more inflation in the future. These events will make the Fed’s job of fighting inflation even more difficult. It looks like reaching the 2.0% inflation goal now becomes an even more strenuous endeavor.

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