![Ivan Ferraz](https://businesspress.vegas/wp-content/uploads/2024/04/19125155_web1_Ivan-Ferraz-Headshot.jpg?w=640)
While basketball fans everywhere are following NBA playoffs, business owners are tracking the 2024 Fed meeting schedule. But just as true hoops enthusiasts know that game strategy is comprised of more than three-point shots, so should business owners remember that interest rates aren’t the only factor for long-term success. Last December, the Fed said that it expected to cut rates, which are at a 22-year high, three times in 2024. Yet when the central bank met in March, it left rates unchanged, saying it didn’t want to jeopardize lower inflation and healthy economic growth.
So, when the Federal Open Market Committee meets again on April 30-May 1, anticipation will be high. Prognosticators are on every channel, wondering whether the central bank will keep its 5.25 percent to 5.5 percent target rate unchanged again, or if it will announce the first of its three cuts. And if it does, observers ask, how could lower rates impact growth in the U.S. economy?
As a commercial banker who has watched the interest rate scoreboard over the past many years, here’s my advice from the sidelines: Stick to your long-term game plan. Put your company in a position to win the balance-sheet game when it comes to the cost of capital.
Here are my four key strategies from my dog-eared playbook to keep your head in the game:
SEE THE COURT
Do not focus on interest rates alone for your capital strategy. You need to be aware of other negotiated factors when funding your company’s financial future. Besides interest rates, other terms — loan maturity, advance rates and guarantees — can offer important value. Many times, it makes good strategic sense to pivot from the interest rate toward other terms to advance your company’s medium- and long-term game plan.
DO NOT OVERREACT TO THE OFFICIALS
The Fed is like an economic referee, making calls to control the economy’s pace. Do not lose your cool when the whistle blows. Three rate reductions are still expected this year, but when the central bank plans to make that call, no one knows — yet.
MANAGE THE CLOCK
Think about timing when it comes to borrowing. When rates dip, you might consider making a few key borrowing moves to fund some crucial projects and wait to fund other projects later in the game. Consider the purpose of the debt on your balance sheet. Would your company benefit from having a mix of floating and fixed rates? This may allow you to hedge and still potentially benefit from low floating rates, while also maintaining certainty for longer-term, fixed rates.
STICK WITH YOUR GAME PLAN
When rates do change, do not throw out your playbook. Instead, call a time out and consult with your banker or interest rate risk advisor to help ensure your borrowing decisions match your company’s long-term plans and goals for continued growth and success.
If you do not need capital, do not borrow just to lock in a lower rate. Interest rates should not be the driving factor when making borrowing decisions. Borrow when you need to; have a good reason for it.
Remember, interest rate changes will always interrupt the flow of your game. But your goal is to ensure that your financial future is deliberate — not purely defensive, based on the ebb and flow of interest rates.
Ivan Ferraz is the head of commercial banking for Wells Fargo in Nevada. The views expressed present the opinions of the author on prospective trends and related matters in middle market banking trends as of this date, and do not necessarily reflect the views of Wells Fargo & Co., its affiliates and subsidiaries.