October 21, 2025
Bad things happen. Markets wobble, economies slow down, and sometimes the Federal Reserve steps in to give things a nudge. When the Fed lowers interest rates, it’s not just a headline for economists, it’s a ripple that touches every business, from the corner bakery to the Fortune 500. So, what does a rate cut actually mean for companies? Let’s break it down.
Think of interest rates as the price tag on money. When the Fed cuts rates, that price drops. If your company has a loan with a variable rate (maybe tied to the prime rate), your interest expense could shrink almost overnight. That means more cash in your pocket for expansion, hiring, or just weathering a tough patch. For small and mid-sized businesses that live and die by their credit lines, this is a big deal.
Here’s the flip side: when rates drop, so do the returns on things like savings accounts, money market funds, and bonds. If your company is sitting on a pile of cash, you’ll probably notice your interest income taking a hit. But if you’re looking to raise money by issuing debt, lower rates can make that a lot more attractive—and affordable.
The Fed isn’t just fiddling with rates for fun. Its job is to keep inflation in check and unemployment low. Lowering rates is like stepping on the gas pedal for the economy—encouraging people and businesses to spend, borrow, and invest. That can mean more customers walking through your door and a healthier job market. But if the Fed keeps rates too low for too long, inflation can creep up, and suddenly your costs start rising faster than you’d like.
Lower rates can make the U.S. dollar less attractive to investors, which usually means the dollar weakens compared to other currencies. If you’re exporting goods or services, that’s good news—your products just got cheaper for overseas buyers. On the flip side, if you rely on imports, your costs might go up.
When rates fall, investors start looking for better returns than what they can get from bonds or savings accounts. That often means more money flowing into the stock market, which can push up share prices. If your company is publicly traded, this can make it easier to raise money or just look good to investors.
Cheaper borrowing costs can light a fire under mergers and acquisitions. If you’ve been eyeing a competitor or thinking about expanding, a lower interest rate environment can make those big moves more affordable.
Lower rates don’t just help companies, they help your customers, too. Cheaper mortgages, car loans, and credit cards mean people have more money to spend. If you’re in a consumer-facing business, you might see a bump in sales.
Thinking about buying a new building or investing in equipment? Lower rates mean those big-ticket projects are suddenly a lot more doable. The cost of financing drops, and that can tip the scales from “maybe next year” to “let’s do it now.”
This isn’t the Fed’s first rodeo. Let’s look at a few times when rate cuts made waves:
- 2001 (Dot-Com Bust): The Fed slashed rates from 6.5% to 1.75%. Borrowing got cheaper, but unemployment still climbed from 4% to over 6% as the economy worked through the tech wreck. Inflation stayed pretty tame—around 2-3%.
- 2008 (Financial Crisis): Rates went from 5.25% to nearly zero. It took time, but the move helped stabilize the financial system. Unemployment peaked at 10% in 2009, then slowly improved. Inflation even dipped below zero for a bit before bouncing back.
- 2020 (COVID-19): The Fed dropped rates from 1.75% to near zero in a matter of weeks. Unemployment spiked to almost 15% but fell quickly as the economy reopened. Inflation, which was quiet at first, started to roar back in 2021 as demand outpaced supply.
Want to dig deeper? The Federal Reserve Economic Data (FRED) site has all the charts and numbers you could ever want.
See the Federal Funds Rate | Unemployment Rate | Inflation (CPI)
A Fed rate cut isn’t just a blip on a chart—it’s a real-world event that can change how you borrow, invest, hire, and plan for the future. Whether you’re running a startup or a sprawling enterprise, understanding how these changes ripple through the economy can help you make smarter decisions.
So, next time you see a headline about the Fed lowering rates, you’ll know exactly what it means for your business—and what to watch for next.
For additional guidance, contact us today. Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.