Several weeks ago, Federal Reserve Chairman Ben Bernanke rattled economists by alluding to an imminent tapering of the Fed’s quantitative easing. The almost immediate reaction was rising interest rates, which quickly rose from the mid-3-percent range to above 4 percent, where it has hovered ever since.
Rising Interest Rates
Even after an announcement by Bernanke that the stimulus would continue until unemployment dipped below 6.5 percent, interest rates continued a gradual but determined rise. Higher interest rates have a direct impact on the affordability of homes and cars, two critical markets that manufacturers rely on. They also make large capital equipment purchases less affordable, and make it more challenging in general for businesses to obtain or afford loans. All this could have a significant impact on the manufacturing sector.
IMT asked several industry experts how drastic the effects of higher interest rates will be once they occur. Opinions were split, but the majority said that manufacturers could weather a rise in interest rates.
“It’s inevitable, and all of the smart manufacturing companies are preparing for it, so I really don’t think it’ll have a negative effect at all,” said Brad Holcomb, chair of the Institute for Supply Management (ISM)’s Manufacturing Business Survey Committee. “There may be some really short-term negative effects, but the [long-term] effect will hardly be discernible. Manufacturing in the U.S. has been an anchor of the economy for decades, and has gone through a lot of gyrations.”
Holcomb said the economic crash in 2008 forced manufacturers of all types to restructure and adapt, thereby making them more resistant to severe economic consequences. Rising interest rates are a interesting topic we will continue to follow them closely.
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