Will your interest rates be “Higher for Longer”?

November 27, 2024/Business/

You’re a funeral home or cemetery owner/operator and you are in the final stages of planning that 2025 business budget. If you have loans for livery vehicles or building improvements that are either adjustable or coming due in 2025 what can you reasonably expect for interest rates on those loans going forward?

As of today when I write this article the Federal Funds Rate, the rate banks borrow money from the federal government at and banks use as a base when working on their interest rate margins, sits at the 4.50-4.75% rate. That rate is down from a 5.25-5.50% rate earlier in 2024.

Part of the reason that rate is down is that those who fix the Federal Funds Rate have had the mindset that inflation is coming under control. However, just last week one of those policy makers who help set the Federal Funds Rate, Michelle Bowman, questioned if inflation is under control and made the point in this article from Reuters that interest rates may be higher for longer.

To that end, Bowman made this statement in that article, “I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point, while recognizing that we have not yet achieved our inflation goal and closely watching the evolution of the labor market.”

Tom Anderson
Funeral Director Daily

Bowman also made this point which infers that, all things being equal, interest rates may continue to be higher. Here’s what the article said about that inference, “. . .she believes the neutral policy rate – the level of borrowing costs that neither bolsters nor brakes economic growth – is much higher that it was before the COVID pandemic, “and therefore we may be closer to a neutral policy stance than we currently think.”

So, at least from this article I think that it would be wise to budget for levels of our current rates for 2025. If one budgets for that amount they will probably be safe on the high side for 2025. And, if the rates do tick down, you then have some extra money in the bank.

When I did my budgeting on interest, and other items, I always preferred to over-budget rather than under-budget. That way, if I was wrong, it was to my favor and I saved some from my budget numbers rather than being wrong on the other side and having to figure out how to plug the budget hole.

Prime Rate — The Prime Rate as published by the Wall Street Journal sits at 7.75% today. By definition the Prime Rate is the rate that financial institutions will give their most creditworthy customers at any given time. Prime Rate is not a national rate and will vary from bank to bank.

Here’s a historical chart of the JP Morgan Prime Rate from 1983 until today. Their Prime Rate sits at 7.75% today but was as low as 3.25% in March 2020 before the Federal Funds Rates were raised to try to put a stop to inflationary costs.

Related Information — Sometimes it is interesting to look at what public companies are paying for credit and at least use that as a relative data point when searching out your own credit terms. While there are no two borrowing situations exactly alike, such as some with physical collateral and some offering no collateral and differing maturity lengths of the debt, the rates and terms given are great points to know when talking with your local banker. In September both Service Corporation International and Matthews International closed new debt offerings. You can read about those from company press releases here:

More news from the world of Death Care: