Fed: Businesses replacing, updating equipment despite interest rates

NASHVILLE — Businesses are replacing and updating their equipment despite unpredictable interest rates, Federal Reserve economist Martin Lavelle told attendees at Equipment Finance Connect 2024 on May 6.  

The unpredictable interest rate environment has prompted some companies to approach equipment financing differently, Lavelle said.  

“One thing that has been consistent is that if you as an employer, if you need to upgrade or update or replace [capital expenditures], you’re going ahead and doing [that] even with a higher-rate environment; that seems to be pretty consistent,” he said.  

“It’s not just sector-dependent, it’s employer-dependent,” Lavelle said, adding that he has talked to corporate lawyers in different economic sectors with varying opinions on future rate cuts. Some have told him they aren’t budgeting for any rate cuts at all, while others are projecting three or four rate cuts in their forward-looking balance sheets.  

Lavelle couldn’t comment specifically on whether there will be a rate cut from the Fed this year, or how many there might be.  

“It’ll be interesting as the year goes on, if that doesn’t materialize and how that will happen,” he said. “That’s pretty much an in-progress conversation, because of … what’s happened in the last couple of months with these, with the standout stubborn inflationary categories.”  

That said, Lavelle told the crowd at the event that “it seems like if you’re on the CapEx side and you’re going to replace equipment, you’re going ahead and doing it, that seems to be a consistency.”