We know where we have been as interest rates and inflation have moved upwards in the last two years. . . but, do we know where we are headed with those items and how their future directions will affect our businesses going forward?

 

I found some information that may be helpful to planners moving forward.  For instance, this article from The Financial Times points out that corporate bonds issued so far in 2023 have come with an average of 10 years to maturity — the lowest term-time figure in a decade.  And, that “for the most part, companies are preferring to borrow for three, five, seven and 10 years more than borrowing for 30 years”, according to a statement in that article.

 

I think that fact simply points out that companies expect interest rates to go down over the next few years and don’t want to tie up their money in “long-term” high interest rate environments.  If so, that is smart money management.

 

As a matter of fact that is what Matt Brill, head of investment grade credit at Invesco believes when he says this in the Financial Times article, “I think most corporations feel like they’ll have a better opportunity to borrow for cheaper — meaning yields will be lower — in 2024 or 2025”.

 

However, does that thought jive with what we are seeing and expecting from the Federal Reserve?  As you may know they met and decided not to raise interest rates last week.  In essence, they believe that inflation can be brought down without rates going higher. . . at least at this time.

 

However, as you can see from this projection chart , not raising interest rates last week also pushed out the Federal Reserve Board of Governors projections indicating that we will not get back to “acceptable” inflation of 2.0% until 2026.  Their projections show that when we reach that level that they believe the Federal Funds interest rate will be about 2.5% as compared to today’s rate of about 5.6%.

 

Funeral Director Daily take:  We see and understand the reasoning behind taking out short-term loans for operations or equipment because of the belief that interest rates will be coming down — as indicated by the Federal Reserve’s projections — by over 1/2 by 2026.  We agree it is smart not to tie up loans for a longer-term on the higher interest rates of today.

 

But, the million dollar question is “What if the projections are wrong?”  What will happen to many funeral homes and death care operations if interest rates and inflation stay at stubbornly high rates?

 

When I saw the new 2026 projection for inflation to be under control by — as evidenced by a 2.0% rate — it prompted me to go back to the inflationary times at the beginning of my career and look to see how long it took for inflation to get under control.  As you can see by the chart below, inflation increased to an above 5% rate for the first time in 1969 and with the exception of 1971 and 1972, when inflation was pegged at 4.29% and 3.27% respectively, the inflation rate did not return to under 5% until 1983.  That’s an inflationary period of 13 years.

 

U.S. Inflation Rate – Historical Data
Year	Inflation Rate (%)
2022	8.00%
2021	4.70%
2020	1.23%
2019	1.81%
2018	2.44%
2017	2.13%
2016	1.26%
2015	0.12%
2014	1.62%
2013	1.46%
2012	2.07%
2011	3.16%
2010	1.64%
2009	-0.36%
2008	3.84%
2007	2.85%
2006	3.23%
2005	3.39%
2004	2.68%
2003	2.27%
2002	1.59%
2001	2.83%
2000	3.38%
1999	2.19%
1998	1.55%
1997	2.34%
1996	2.93%
1995	2.81%
1994	2.61%
1993	2.95%
1992	3.03%
1991	4.24%
1990	5.40%
1989	4.83%
1988	4.08%
1987	3.66%
1986	1.90%
1985	3.55%
1984	4.30%
1983	3.21%
1982	6.13%
1981	10.33%
1980	13.55%
1979	11.25%
1978	7.63%
1977	6.50%
1976	5.74%
1975	9.14%
1974	11.05%
1973	6.18%
1972	3.27%
1971	4.29%
1970	5.84%
1969	5.46%
1968	4.27%
1967	2.77%
1966	3.02%
1965	1.59%
1964	1.28%

 

 

Here’s what you need to think about. . . do you have a plan for moving forward if interest rates and inflation stay at stubbornly high rates for some period of time?  We have not been in that business environment for a generation so the idea of planning for it is not common.

 

If you have a loan note maturing in the near future odds are that to renew it you will have to pay higher interest rates which will put a drag on profitability. . . and, if we continue in an inflationary upward spiral on costs might that put another drag on profitability?

 

Finally, there is the thought process that your paying clients might cut back on the services they select if they also find themselves in a spiraling upward cost society.  It is interesting to note that cremation more than doubled in the 1970s-1980s high inflationary period.  The cremation rate went from about 5.7% in 1975 to about 13.7% in 1985 —  the fastest percentage growth rate of cremation in modern history.  It’s impossible to know at this time, but the inflationary cost of a traditional funeral during that time period may have exacerbated the cremation rate growth.

 

The possibility of long-term inflation and long-term higher interest rates is a sobering thought.  But, if history repeats itself, it is one you maybe better put a plan in place for.

 

Related Article —  Interest rates staying “higher for longer” means at least through 2026 for the Fed.  Yahoo Finance

Related Article —  Banks may lean on costly “Hot Money” to get through “higher-for-longer” Fed campaign.  Yahoo Finance

 

More news from the world of Death Care:

• Six ways to save on funeral expenses.  Kiplinger Personal Finance
• Increase in cremation provides a need for unique final resting place options.  Derby Informer  (KS)

 

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