On July 27, 2022, the Federal Reserve raised interest rates by three-quarters of a percentage point, its second consecutive 0.75 percentage point increase (the first, in June, was the largest interest rate hike since 1994) and the fourth hike this year. What do the Fed’s moves to bring down inflation mean for the dental community?
It is important for you to have a team of trusted advisers that understand the dental industry. Your team may include an accountant, financial advisor, real estate broker, consultant and banker. You should consult with your team before borrowing and look at options to lock in rates long term.
According to the article Federal Reserve, the Economy and CD Rate Forecast – Aug 2, 2022 posted on Wednesday Aug. 2 by industry analyst Ken Tumin, interest rates are projected to continue to rise through 2022.
“The odds that the Fed will do another 75-bp (basis point) rate hike at its September 20-21 meeting have fallen. The odds are now 41.5%, down from 49.4% last week. The highest odds are for a 50-bp rate hike,” Tumin wrote.
“There are three remaining Fed meetings this year, and the odds suggest the rate path will be 50-25-25 for a total increase of 100 bps. That would move the target fed funds rate from today’s level (2.25%-2.50%) to 3.25%-3.50% by the Fed’s December 13-14 meeting.
While interest rates are rising, however,, now is still a good time to borrow money. Tumin goes on to say that rates could start to come down next year.
“By the July 26, 2023 meeting, odds have increased slightly that there will be at least one rate cut. If a recession hits hard, the Fed will be under pressure to cut rates. The market doubts that the Fed has enough determination to squelch inflation with a long period of high rates.The odds suggest that either inflation falls quickly in the next year or the Fed returns to its pre-pandemic inflation mindset.
According to the article, Fed’s Interest Rate History: A Look at the Fed Funds rate from the 1980s to the Present posted July 27, 2022 by Bankrate Federal Reserve reporter Sarah Foster, ““The Federal Reserve is raising interest rates at the fastest pace in four decades, but its benchmark borrowing rate is still historically low — for now. That’s partially because the federal funds rate — a key borrowing benchmark set by the Federal Reserve — has remained below its historic average (4.61 percent) since 2007. In fact, the Fed’s key rate spent nine of those years at the rock-bottom level of 0 percent, first from 2008 through 2015, and then from March 2020 to March 2022. The Fed’s rate once soared to a target level as high as 20 percent in the early 1980s.”
If you are expanding with a renovation, addition, or ground-up construction project, that probably means that your practice is growing and you need more space to be able to see more patients. You should consider how much you will be able to grow your practice by expanding.
Are you purchasing a practice? You should consider what the cashflow of the practice is.
Are you looking to start a practice? You should have a business plan, projections and make sure that the location you have selected has a need.
The dental industry continues to grow. Now is still a good time to expand, start, or purchase a practice.