US businesses brace for Fed decision

Luke Wilson (0:00)

US interest rates are set to rise for the first time in more than three years. It's World Business Express from the BBC World Service. I'm Luke Wilson. The boss of OpenAI says people should have more faith in his company to keep humanity safe, and the EU opens the door to Canada, becoming the bloc's first associate member.

The Federal Reserve will announce its latest interest rate decision in the next few hours, and it's widely expected it'll increase rates for the first time since July 2023 Soaring oil prices because of the war in the Middle East have pushed up inflation, with diesel now on average $6.27 a gallon, a record high. Investors are betting that will force America's central bank to raise the rates by a quarter of a percent to try and slow inflation down. But there's one person who definitely won't be happy about it.

Russ Mould (0:58)

We should be paying, the United States is so strong, we should be paying the lowest interest rate in the world, regardless of their formulas.

Luke Wilson (1:06)

I know more about formulas than anybody.

Natalie Tocchi (1:08)

And we're the best credit in the world.

Russ Mould (1:11)

We make other countries rich.

Scott Imboden (1:12)

We could turn that off in two minutes.

Luke Wilson (1:14)

You understand that.

US President Donald Trump has made no secret of the fact that he wants to see the Fed reduce rates to make borrowing costs cheaper. Scott Imboden is Chief Operating Officer of Natural Choice, Ohio's biggest family owned dairy farm. And he told me a rate rise will hit his business.

Scott Imboden (1:32)

About five or six years ago, a lot of folks in the industries had the opportunity to refinance amidst the COVID and low interest rates during that time.

Those of us that were able to get that done and set it up on a longer term fixed rate, I think doing all right. But for some of those loans that were set up or refinanced back in 2021, were set up as a five year interest only or a five year rate to then be adjusted basically now in this year. And so we're starting to see the effects of a lot of folks' interest rates in our industry going up here very quickly here, probably in the next 30 to 60 days.

Luke Wilson (2:17)

And if you have those extra costs from this rise in interest rates, can you pass that on to consumers or do you have to absorb that as a business?

Scott Imboden (2:25)

For the most part in our business, we have to absorb it. And so it becomes a matter of which thing are we going to live without this year or which bottom line cuts are we going to make for this year in our industry, typically prices, especially right now, are not that great. As we think about things that are happening on the global scale and on the global stage with trade and in our dairy and grain industries right now, it's truly a whiplash effect. The markets are really not sure what to do and we've been very, we watch them hour by hour every day.

But honestly, right now we've got to keep our sites forward, not make any knee jerk reactions, keep the strategy that we've developed on the table and keep our nose down. And it's, yes, short term, I think we're going to choose to possibly forego that next large capital purchase that would have otherwise needed to be financed.

Luke Wilson (3:32)

Scott Imboden from Natural Choice Dairy in Ohio. Russ Mold is investment director at AJ Bell and Russ, investors pretty confident will see a hike in rates later. But how closely are you going to be watching what the Fed says alongside that decision?

Russ Mould (3:46)

Very closely, because markets are then currently pressing in three more one quarter percentage point increases by this time next year. Remember, the Fed has got a dual mandate, jobs on one side, keeping inflation low on the other. The jobs market is tight, but it's missed its inflation target for five years in a row. So that's probably why Mr. Walsh, the boss, feels that he's under pressure at the Fed. Equally, he will be keeping an eye on the president's comments, the national debt and the midterm elections coming up in November, where any movement the Fed makes now could be seen, portrayed, as political.

Luke Wilson (4:18)

And the Fed, not the only central bank making a rates decision this week, it's the Bank of England's turn on Thursday, and we've had some new data to help inform that decision.

Russ Mould (4:27)