QE Taper Risks Spike in Global Interest Rates

Forbes Reports:

3/17/14

"...The Federal Open Market Committee (FOMC) expects the taper of the Quantitative Easing to continue. Economists expect the Federal Reserve to cut another $10 billion from its monthly asset-purchase program at its two-day monetary-policy meeting, lowering its monthly bond buys to $55 billion.

The FMOC meets Tuesday and Wednesday, and it will be the first one overseen by new Fed Chair Janet Yellen. Bond traders will focus on the commentary that accompanies the decision, which is slated to be released Wednesday afternoon. Additionally, during this meeting, the Fed will release its new economic forecasts..."

The Feds reduction in asset purchases, (primarily mortgage backed securities from banks and market makers) reduces market liquidity and cheap source of funding for banks. The goal of the Fed's QE has been to buttress the capital structure of banks to assure liquidity in credit markets. The QE program has been successful in maintaining low interest rates. This has benefited SMEs by keeping the cost of capital low and credit channels open.

Low interest rates have helped SMEs to borrow cheap money. Low interest rates have also benefited consumers by keeping borrowing rates for mortgages, car loans and credit cards low. This has stimulated market demand for SME products and services. QE has been a major market support for SMEs as the post Great Recession global economy continues to restructure. 

SME's must assess how QE tapering will affect their capital structure, business model and client purchasing power. It's critical for SME's to assess how these subtle changes in the market landscape will impact numerous aspects of the business.

Credit|Redi is a critical tool used by SME managers to determine financial health, assess business factors to improve profitability and demonstrate creditworthiness to lenders to fund business growth.

Download Credit|Redi on Google Play here. Get Credit|Redi

Risk: credit risk, sme, FOMC, interest rate, cost of capital, QE, Quantitative Easing, FOMC, Fed, Federal Reserve, Great Recession, Janet Yellen, Forbes

Managing Macroeconomic Risks

Yesterday Ben Bernanke's statements about changing sentiment of the Federal Reserves' Quantitative Easing program touched off a mini stock market crash.  Though you took a solid hit in the value of your investment portfolio and retirement account the changing stance of the Fed will also impact the financial health and business conditions of small and mid-size businesses (SME). The days of near zero interest rates and the massive liquidity infusions by the Fed through Treasury purchase programs are coming to a close.  That will effect the availability and the cost of capital for SMEs. 

Macroeconomic risks are quickly becoming one of the greatest class of risk factors for SMEs. Credit availability, customer buying power, inflation, supply chain disruption, cyclical and market sector risks are growing in significance and threaten the profitability and financial health of all SMEs. Unfortunately, some businesses will not be able to surmount the acute challenges posed by these emerging economic risk factors and will find it difficult to continue as a going concern.

A difficult economy presents challenges for all businesses.  SME's require risk assessment tools to help better manage business threats and seize opportunities that fluctuating market conditions produce.  Many believe that mitigating macroeconomic risk factors are difficult if not impossible for SMEs to mitigate.  After all what can a small business do to immunize itself to inflation or spiking interest rates? Though it may seem to be an impossible task to shield a business from macroeconomic risks; executives that effectively engage to manage these type of threats Can profit from the opportunities severe market conditions produce.

Sum2's risk assessment products help SMEs deal with the problem of rising macroeconomic risk factors. Small business managers use our SPOT application to aggregate and score all enterprise risk factors.  This helps managers to focus on the most pressing risk factors that ironically have the potential to generate optimal returns on capital employed. 

Credit|Redi is a series of assessment applications that help SMEs improve the company's financial health.  As a company's credit rating improves, access to bank loans and other sources of capital become readily available at more favorable terms to the SME.  This is a particularly pressing problem as SME's have born the brunt of financial distress ignited by the Great Recession.  As interest rates rise SMEs borrowing costs will increase placing further stress on profitability and financial health.

It brings us great satisfaction to place world class risk management tools in the hands of small businesses to better manage business threats . The macroeconomic risk module is one of twenty risk assessment modules offered in SPOT.  

The effects of rising macroeconomic risk factors will begin to appear in an SME's operations and target markets potentially stressing the company's financial health.  SPOT potential problems and opportunities before they emerge.  SPOT and assess the current business conditions to make adjustments and initiate actions to overcome difficulties and seize opportunities the new business cycle is sure to present.

Sum2 Risk Assessment Applications

Risk: credit, inflation, market, buying power, customer risk, supply chain