The days of easy money are over and the economy is entering a new era of higher rates. For middle market businesses accustomed to low-cost capital, this new era is posing a particular challenge, requiring new strategies to manage these higher loan costs.
In this month’s issue of The Real Economy, RSM’s chief economist Joseph Brusuelas analyzes what is driving the great rate reset. Businesses and investors will have to adjust to a time when term premiums placed on debt by investors are positive, reflecting higher long-term trend growth. It also means higher loan costs for middle market businesses, which will require a rethinking of finance and accounting functions.
A big reason for this rate reset has been the resilience of the American economy, which has been buoyed by elevated levels of excess savings. Brusuelas and RSM’s U.S. economist Tuan Nguyen make the case that excess savings are higher than previously estimated and suggest that the recovery may last longer than expected.