Too Little, Too Late? Only time will tell whether the Fed's interest rate cuts will help entrepreneurs.
By C.J. Prince
Opinions expressed by Entrepreneur contributors are their own.
The economic slowdown and rumors about a recession in the offingfor 2001 is causing small-business advocates to voice frustrationover the Federal Reserve's delay in lowering interest rates.When the flow of money slows to a trickle in the public markets andtraditional borrowing rates remain high, entrepreneurs get hitfirst and, arguably, hardest.
The economy depends on entrepreneurial growth, so the Fed shouldhave ample incentive to cut rates and make other pro-small-businesspolicy changes. So says the Small Business Survival Committee, a nonprofit,non-partisan small-business advocacy group. In its latest report,SBSC chief economist Raymond Keating praises Congress' 1997capital gains tax cut and the incentive it provided for investmentin entrepreneurial ventures, but also criticizes the tightening ofmonetary policy in late 1999 and early 2000, calling those ratehikes "grossly misguided policy measures."
The January rate reduction was a move in the right direction,says Keating, but he adds it could hardly be called a panacea,given that Wall Street seemed wary at best. The SBSC is urgingadditional rate cuts, plus tax cuts and deregulation to providepro-growth incentives. "We expect to see a quick phase-in andpassage," says Keating, adding that it can take anywhere fromsix to 18 months for the effects of Fed policy changes to windtheir way through the economy. The longer it takes, he says, theharder it will be on entrepreneurs.
"We're very glad to see the Fed reversing course,"Keating says. "Our question is, Are they too late?"
That's a tricky one, agrees Todd McCracken, president ofWashington, DC-based National Small Business United. "You cutrates when you see a downturn, and that's when something hasactually happened, which means, almost ipso facto, you're toolate," he says. But entrepreneurs have an advantage introubled times. "Small businesses are responsive and can turnon a dime," says McCracken.
Of course, entrepreneurs should be careful with their businessplanning and cautious with their spending. But, McCracken adds,"If they've only been discouraged from doing somethingbecause of the cost of credit or capital, and they now see thatcoming down, they should jump on it."
C.J. Prince is a New York City writer who specializes inbusiness topics and the executive editor of Chief Executivemagazine.
