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Interest Rate Unpredictability Tests Boards
Key Points
- Higher interest rates demand that boards rigorously pressure-test assumptions underlying major investments.
- Directors should work with management to gain a granular view of forecasts, debt maturities, and refinancing risk.
- With rates near 4 percent, cash on the balance sheet carries real return value and should factor into strategic decision-making.
This AI-generated summary, based on content on this page, was reviewed by NACD editors for accuracy.
Capital-allocation decisions are complicated in an environment where the cost of money is difficult to predict.
In July, the US Federal Reserve maintained its benchmark interest rate, though the central bank’s leaders were split on the appropriate course of action. Soon after this decision, the yield on 30-year Treasury securities, or US-government-issued debt instruments, soared to more than 5.3 percent, the highest rate since 2007. In mid-September, the Federal Reserve opted to raise rates for the first time in three years by 0.25 percentage points to a range between 3.75 percent and 4 percent, despite advocacy from the White House to cut rates.
These developments have greatly impacted businesses’ borrowing, spending, and capital allocation considerations. ...
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Noah Kirsch is a contributing writer for Directorship and Directorship Online.
