Navigating the end of free money and low inflation
Inflationary pressures and higher interest rates are now front and center of the executive agenda. Planning for the future based on the realities of this new environment and considering areas of risk is essential.
As regulators and markets react to the recent banking disruption, many factors are adding complexity to this equation, even following the recent quarter-point rate hike. Federal guarantees for uninsured deposits, backstops for collateral lending facilities, and an assumed slowdown in the pace of interest rate hikes would, in an academic sense, naturally lead to increased inflationary pressures, counter to the Feds recent efforts to tamp down inflation.
On the other side of the equation, overall market uncertainty may lead to tighter lending standards-a "pro" in the Fed's column to reduce inflation.
To succeed in this new era of more expensive and restrictive borrowing and increased uncertainty around operating expenses, organizations need to think differently about how they finance and operate themselves.
Two things are critical
1. Identify inflationary pressures within your current or future cost structure and proactively implement changes.
2. Identify financing risks and proactively consider your leverage with stakeholders (vendors and credit providers alike) and work to evaluate liquidity.
Those who gain additional runway through operating improvements and financial evaluations today will be at an advantage. Doing so will allow you to thrive in this environment.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
