Like most people in the financial sector, Pete Dontas, New Jersey market executive at Wells Fargo, expects that the Federal Reserve will cut interest rates for the first time since 2020 — perhaps as soon as this week, as the Fed will meet Tuesday and Wednesday.
The cut, which figures to be anywhere from 25 to 50 basis points, will provide some relief to the business community, especially those looking to borrow money sooner rather than later.
Its greatest potential impact, Dontas said, wouldn’t come until later — and, perhaps, only if the Fed continues to cut rates.
“I don’t think an initial 25 basis-point rate reduction is going to be earth-shattering,” he said. “It certainly will make borrowing cheaper, but I don’t think it will determine what decisions you may or may not make.
“But, if the Fed continues to potentially lower rates over the year or year and a half, it could be much more meaningful,”
Here’s why.
Dontas said he sees two specific trends:
- Companies are more judicious in what they borrow for short-term working capital, which often means inventory purchases. “They’re just being a little more careful,” he said.
- When it comes to capital expenditures (equipment, plant expansion, moving to a new location or expanding to a different market), a bigger rate cut may spur more activity. “It may allow them to be a little more aggressive,” he said.
Of course, the borrowing is based on much more than just interest rates, Dontas said.
“At the end of the day, it’s the economy, right?” he asked, and answered. “If you don’t have the demand, you’re not going to build up your inventory. If you don’t see the need to expand to a different geographic market, you’re not going to do it, even if interest rates are much lower.”
The good news in New Jersey is that Dontas feels the economy is in good shape. Better said, it would be in a position to take advantage of continual rate cuts.
“I think the New Jersey economy is steady as it goes,” he said. “I live at the Shore; it was packed this summer. When I go to restaurants for client dinners, whether it’s up in northern New Jersey, or down in southern or central New Jersey, the restaurants are crowded.”
He said the feedback he gets from companies is strong, too.
“There are some pockets of weakness, but, overall, it’s good,” he said. “I think a year from now everything will be steady to moderately better.”
A year from now — that’s after the presidential election, but before the gubernatorial election.
Dontas does not necessarily see either having a major impact.
Politics makes for good conversation, but it doesn’t necessarily change business growth — even the presidential race.
“It’s certainly cocktail party chatter, but I really don’t think that it’s going to impact what happens in terms of loan demand and what companies decide to do,” he said. “Now, there’s talk about tax policy and changes to capital gains. Some people and companies might make some decisions based on that to get ahead of that, but that’s still to be determined.
“We don’t know who’s going to win, we don’t know what they’ll do and, lastly, no matter who wins and what they want to do, you still have to get it past Congress — so it’s going to be well into next year before those decisions are made.”
A rate cut appears likely to come sooner. The only question may be by how much
“Nothing’s 100%, but they certainly are signaling that rates are coming down this month,” he said. “I would be stunned if they don’t come down 25 basis points. There’s some talk about 50, but I don’t see 50.”
Dontas said it will be data dependent, based on jobs reports and inflation numbers. He also thinks there could be one or two more by the end of the year.
“I just can’t imagine that it wouldn’t happen,” he said.
