The Federal Reserve just made money more expensive again.
On September 16, the Federal Open Market Committee raised its target range for the federal funds rate by a quarter percentage point to 3.75%–4.00%. The decision was unanimous.
For business owners, the important question isn’t why Wall Street moved after the announcement.
It is what a higher cost of money changes when deciding whether to borrow, buy equipment, acquire a company, purchase real estate, carry inventory, or expand.
And the Federal Reserve’s latest projections suggest businesses shouldn’t automatically assume borrowing costs will quickly move back down.
Why the Fed Raised Rates
The Federal Reserve described an economy that remains relatively strong.
Economic activity is expanding at what the Fed called a “solid pace.” Domestic spending has remained resilient, productivity growth is strong, capital investment is robust, and unemployment has changed little.
The problem is inflation.
The Fed said inflation remains elevated and that the rate increase is intended to help return inflation to its 2% target more quickly.
The Fed’s latest economic projections reinforce that concern.
Federal Reserve officials now project median PCE inflation of 3.7% for 2026, up from 3.6% in June. Core PCE inflation is projected at 3.4%.
At the same time, officials project real GDP growth of 2.3% in 2026 and unemployment of approximately 4.1%.
That combination helps explain the Fed’s position.
The economy is still growing. Employment remains relatively stable. But inflation remains considerably above target.
Businesses Shouldn’t Assume This Is the Last Increase
The rate increase itself matters.
The Federal Reserve’s projections about what comes next may matter even more.
The median projection among Federal Reserve officials puts the federal funds rate at approximately 4.1% at the end of 2026, up substantially from the 3.8% median projection made in June.
Those projections are not promises. Individual Fed officials can change their views as economic conditions change.
But they indicate that policymakers currently see monetary policy remaining tighter than they previously expected.
For business owners, that means it may be risky to build an investment or acquisition strategy around the assumption that substantially cheaper financing is just around the corner.
Lines of Credit Become More Expensive
The most immediate effect for many small and midsize businesses will be variable-rate debt.
Business lines of credit and other loans tied to short-term benchmark rates can become more expensive as rates rise.
A quarter-point increase may not sound dramatic.
But the effect becomes more meaningful when businesses already carry significant debt or routinely use credit to finance inventory and working capital.
For a business operating on thin margins, additional interest expense is money that cannot be spent on hiring, equipment, marketing, or expansion.
That makes working-capital management increasingly important.
Businesses carrying unnecessary inventory or allowing receivables to age may effectively be financing those inefficiencies at a higher interest rate.
Equipment Purchases Have a Higher Hurdle
The same logic applies to equipment.
A piece of machinery, vehicle, or technology system doesn’t become less productive simply because interest rates rise.
But financing it becomes more expensive.
That changes the return calculation.
Businesses should increasingly ask whether an investment produces enough additional revenue, labor savings, or productivity improvement to justify its financing cost.
Projects that made sense when capital was cheaper may no longer clear the same hurdle.
That doesn’t mean businesses should stop investing.
It means investment quality matters more.
Commercial Real Estate Feels It Too
Higher rates can have an especially significant effect on commercial real estate.
Businesses purchasing buildings face higher financing costs.
Property investors refinancing existing debt may encounter payments significantly different from those attached to loans originated when rates were lower.
Developers also face higher carrying and construction-financing costs.
Those pressures can eventually affect valuations because buyers generally cannot pay the same price for an asset when the debt used to acquire it becomes more expensive.
For business owners considering whether to buy or lease property, the calculation deserves another look whenever financing conditions materially change.
Acquisitions Become Harder to Make Work
The same issue applies to buying businesses.
An acquisition financed with debt must generate enough cash flow to service that debt while still producing an acceptable return for the buyer.
As financing becomes more expensive, buyers generally have three choices:
Pay less for the company.
Put more equity into the transaction.
Or accept a lower return.
That creates pressure on valuations, particularly for companies whose asking prices were established during periods of cheaper capital.
Sellers may continue thinking about what their business was worth several years ago.
Buyers have to calculate what the business is worth under today’s financing conditions.
Those numbers aren’t always the same.
Higher Rates Can Punish Weak Operations
Another effect gets less attention.
Cheap money can hide operational problems.
Businesses can tolerate slow inventory turns, weak collections, excess expenses, or marginal investments more easily when borrowing costs are low.
Higher interest rates expose those inefficiencies.
Every dollar unnecessarily tied up in inventory has a carrying cost.
Every customer taking 90 days to pay instead of 30 forces someone to finance that delay.
Every underperforming asset represents capital that could potentially be deployed elsewhere.
When money becomes more expensive, cash management becomes an operating issue, not merely an accounting issue.
There Is Some Good News in the Fed’s Outlook
The Fed isn’t raising rates because it believes the economy is collapsing.
Quite the opposite.
Its September projections show median real GDP growth of 2.3% this year and 2.4% in 2027, while unemployment is projected to remain around 4.1%.
The Fed also expects inflation to decline substantially, with median PCE inflation projections falling from 3.7% in 2026 to 2.3% in 2027 and eventually returning to 2%.
If that occurs, the environment could eventually allow monetary policy to become less restrictive.
But businesses have to operate in the environment that exists now, not the one they hope will exist later.
What Business Owners Should Do Now
A quarter-point rate increase by itself shouldn’t cause a business to abandon a good investment.
But it should cause owners to update their assumptions.
Businesses considering major capital decisions should rerun the numbers using current financing costs rather than relying on projections prepared several months ago.
Look at variable-rate debt.
Recalculate acquisition financing.
Review equipment purchases.
Examine inventory carrying costs.
Pay closer attention to receivables.
And stress-test projects against the possibility that borrowing costs remain elevated longer than expected.
The businesses most vulnerable to higher rates aren’t necessarily the ones that borrow money.
They are the ones whose plans only work if money becomes cheap again soon.
For owners considering an acquisition, expansion, or major capital investment, the question shouldn’t be whether rates are high or low.
It should be whether the expected return still justifies the cost and risk of the capital required to make the investment.
Impact: Mixed
Businesses most affected: Companies using variable-rate debt, commercial real estate owners and developers, acquisition buyers, manufacturers, construction companies, inventory-intensive businesses and companies planning significant capital expenditures.
Sources
Federal Reserve — Federal Reserve Issues FOMC Statement, September 16, 2026
https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm
Federal Reserve — September 2026 Summary of Economic Projections
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20260916.htm
Federal Reserve — Implementation Note, September 16, 2026
https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a1.htm