Q4 2023
Commercial Insights
How Businesses Can Adapt to a High Interest Rate Environment
Of the most difficult challenges businesses have had to overcome in the past few years, the elevated interest rate environment is near the top of the list. Not only have rates increased swiftly, but the rising cost of capital has added to growing expenses due to inflation. Projects and expansion plans that may have made sense in early
Projects and expansion plans that may have made sense in early 2022 when the 10-year Treasury yield was 2% or lower [...] may look very different when rates are near 4 or 5%.
2022 when the 10-year Treasury yield was 2% or lower, or throughout most of the past decade when the yield was 3%, may look very different when rates are near 4 or 5%. This is in addition to broader economic uncertainty that makes planning more difficult. The jump in interest rates over the past two years is a break from the trend of the past four decades. From the mid-1980s until 2022, long-term interest rates rose and fell with economic growth, while also reaching successive new lows with each business cycle. This was punctuated by the 2008 global financial crisis, which led to a decade of ultra-low rates – and even negative rates in other parts of the world, especially in Europe. This trend was partly due to falling inflation resulting from technology and globalization, which both reduced costs.
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