What the Fed's Big Rate Cut Means for Fashion
The #US central bank’s first interest rate cut since the pandemic will make borrowing cheaper for consumers and companies alike. That’s good news for #retailers.Money...
The US central bank’s first interest rate cut since the pandemic will make borrowing cheaper for consumers and companies alike. That’s good news for retailers.
Money just got a little less expensive.
On Wednesday, the US Federal Reserve made its first interest rate cut in four years, effectively declaring victory in its effort to bring down inflation that set in after the pandemic. Officials voted to lower the rate, used as a benchmark to set borrowing costs throughout the economy, by half a percentage point, to a range of 4.75 percent to 5 percent. That’s higher than the quarter point many economists expected.
The hope is that by lowering rates, the Fed will officially usher in a so-called soft landing for the US economy, where inflation is brought down to target levels without triggering a recession. In August, consumer prices rose at their slowest pace since February 2021. But hiring has slowed dramatically, raising recession fears and contributing to the decision for a more aggressive cut.
The Fed’s move is part of a global trend: the European Central Bank and Bank of Canada cut rates earlier this month, while the United Kingdom and Mexico did the same in August.
Will consumers spend more?
For years, consumers watched interest payments on their credit card balances tick up with each Fed rate hike. This week’s cut, which is expected to be the first of several in the coming months, will lower those payments along with other forms of debt, including new mortgages. Retailers are hoping this will free up more money for consumers to make discretionary purchases, particularly among lower and middle income shoppers.
What does it mean for fashion companies?
Much like their customers, many fashion brands and retailers have borrowed heavily and will welcome the chance to refinance their debt at lower interest rates. Among the large fashion companies analysts point to as carrying relatively higher levels of debt are Macy’s and Nordstrom, as well as Capri Holdings Limited and VF Corporation. The latter recently sold Supreme and is exploring the sale of other brands in part to reduce its debt load.
As borrowing costs decrease, brands and retailers can redirect more money toward growth — opening stores, hiring more employees, crafting buzzy marketing pushes or investing in new digital strategies.
How will investors react?
Fashion start-ups and established brands looking for buyers may start to see more interest. When rates are high, investors tend to park more of their money in cash and cash-like investments, such as treasury bills and money-market funds. Each rate cut will reduce the returns on those holdings, and encourage investors to seek out riskier investments – consumer brands among them.
Of course, nothing will happen overnight. Investors still may be wary of fashion investments.
fashionbusiness fashionnews federalreserve usbanks
Money just got a little less expensive.
On Wednesday, the US Federal Reserve made its first interest rate cut in four years, effectively declaring victory in its effort to bring down inflation that set in after the pandemic. Officials voted to lower the rate, used as a benchmark to set borrowing costs throughout the economy, by half a percentage point, to a range of 4.75 percent to 5 percent. That’s higher than the quarter point many economists expected.
The hope is that by lowering rates, the Fed will officially usher in a so-called soft landing for the US economy, where inflation is brought down to target levels without triggering a recession. In August, consumer prices rose at their slowest pace since February 2021. But hiring has slowed dramatically, raising recession fears and contributing to the decision for a more aggressive cut.
The Fed’s move is part of a global trend: the European Central Bank and Bank of Canada cut rates earlier this month, while the United Kingdom and Mexico did the same in August.
Will consumers spend more?
For years, consumers watched interest payments on their credit card balances tick up with each Fed rate hike. This week’s cut, which is expected to be the first of several in the coming months, will lower those payments along with other forms of debt, including new mortgages. Retailers are hoping this will free up more money for consumers to make discretionary purchases, particularly among lower and middle income shoppers.
What does it mean for fashion companies?
Much like their customers, many fashion brands and retailers have borrowed heavily and will welcome the chance to refinance their debt at lower interest rates. Among the large fashion companies analysts point to as carrying relatively higher levels of debt are Macy’s and Nordstrom, as well as Capri Holdings Limited and VF Corporation. The latter recently sold Supreme and is exploring the sale of other brands in part to reduce its debt load.
As borrowing costs decrease, brands and retailers can redirect more money toward growth — opening stores, hiring more employees, crafting buzzy marketing pushes or investing in new digital strategies.
How will investors react?
Fashion start-ups and established brands looking for buyers may start to see more interest. When rates are high, investors tend to park more of their money in cash and cash-like investments, such as treasury bills and money-market funds. Each rate cut will reduce the returns on those holdings, and encourage investors to seek out riskier investments – consumer brands among them.
Of course, nothing will happen overnight. Investors still may be wary of fashion investments.
fashionbusiness fashionnews federalreserve usbanks