How Fed Rate Hikes Affect Business Borrowing Costs

When the Fed raises rates, do your business borrowing costs always go up?

Most owners would say yes. But when William recorded this episode in September, what actually happened after the Fed’s latest move wasn’t what many people expected.

This was the second part of a series. The week before, William talked about interest rates and bond prices, including whether a 30-year Treasury yielding 5.3% was a good deal. He said rising rates have two sets of implications, one for markets and one for business owners. This episode covers the business side.

Why Inflation Is Still Here

Inflation has been an issue since 2022, when the Federal Reserve started raising rates to tamp it down. At that point it was running somewhere around six to eight percent. It’s come down, but it hasn’t gone away, and William pointed to three reasons:

  • Onshoring and nearshoring. Since COVID, companies have been bringing manufacturing and facilities back to the US. That infrastructure is raising building costs.
  • Tariffs. The tariffs enacted last year added to prices. Many people call it a one-time effect, and William thinks they’re probably right. It still changed the inflation picture.
  • Oil. The conflict in Iran has disrupted the oil market.

What the Fed Is Trying to Do

The Fed has a dual mandate. It’s supposed to keep unemployment low and keep inflation low. William believes it’s the only central bank in the world with both.

Its inflation target is 2%. It hasn’t stated an ideal unemployment rate, but in theory it’s somewhere between 4% and 5%. Unemployment is right in that range, and inflation is above it.

So the Fed raises rates to slow consumption. If people spend less, prices fall back in line, inflation comes down, and the Fed gets the 2% it wants.

What Happened to Business Borrowing Costs

Here’s where owners might be surprised. The logic most of us follow is simple. The Fed raised rates last week, it will probably do it again, so my loans are about to cost more.

Short-term rates did rise, and so did anything tied to prime. But the market’s reaction told a different story:

  1. The first reaction was what you’d expect. Rates ticked up and the stock market fell.
  2. The next day, it reversed. Stocks rallied and bond yields fell.
  3. Over a couple of days, the Fed raised the short end and the long end fell.

The reason is expectations. The market saw that the Fed is committed to lowering inflation, so it stopped expecting runaway inflation. And when inflation expectations come down, long-term rates follow.

Why That Matters to Your Loans

A lot of the rates that consumers and businesses touch are tied to the 10-year Treasury, or to something close to it. That includes 30-year mortgages and many other consumer and business loans. Some loans are prime-based, and those did rise.

But if the Fed raises the short end while the long end falls, that’s a good thing for many owners. It’s especially helpful for homebuilders and anyone borrowing against long-term rates.

If the Fed can keep inflation expectations in check, the 10-year can keep falling. That helps the housing market and the borrowers whose rates follow it.

What to Watch Next

The Fed is doing its part by managing inflation expectations. But William says it needs help. Congress and the administration have to figure out spending, because that will drive inflation expectations over the next 10 years.

For now, he thinks the Fed is doing the right thing to give owners a shot at lower business borrowing costs over the next couple of years.

Join the Conversation:

➡️ Portus Wealth Advisors

➡️ Portus LinkedIn

➡️ Portus Facebook

➡️ Portus YouTube

Want to go deeper?

Portus Perspectives is part of a broader conversation. Join William and the Portus team each month for Charting Opportunities — in-depth discussions with founders, exit experts, and business specialists.

Click the ▶️ button in the player below to listen to the episode now.
If you’re having problems accessing the audio, try disabling your VPN.

William Bissett: [00:00:00] Last week, we spoke a little bit about interest rates and its impact on bond prices, right? And whether or not a 10-year US Treas- or a 30-year US Treasury yielding 5.3% was a good deal. And we talked about, you know, um, the seesaw effect of bond prices and, um, or, uh, interest rates and bond prices over here.

And I said, you know, there’s dual implications. There are business market… Uh, there’s business implications and then market implications. So this week I wanted to touch base a little bit on the business side of it. Inflation has been an issue since 2022 when the Federal Reserve started to try to raise interest rates at that point in time to tamp it down, right?

So we had runaway inflation really up in the, you know, six, seven, probably even up to eight percent at that point in time. And so the Federal Reserve raised interest rates in hopes of kind of getting inflation out. In the last couple years we’ve continued to have it, right? And there’s a couple different reasons for that.[00:01:00] 

And, you know, one of it is as a result of COVID, we still have companies that are looking to, uh, bring manufacturing, bring facilities, bring activity back to the US, and so that infrastructure that they’re putting into place is, uh, raising building costs for all kinds of things, right? So onshoring or nearshoring has created some inflationary issues.

Certainly the tariffs that were enacted last year have inflationary impacts, right? Like a lot of people would tell you it’s one-time inflationary impacts, and they’re probably generally speaking right, but it’s still one-time inflationary impacts. And so it, it did change the inflation dynamic last year.

And then the second or the third thing that you look at is that you’ve still got a war going on, call it a war, call it a conflict, whatever it is, in Iran, and the disruption that it’s had on the oil market. And so we’ve got elevated [00:02:00] inflation. And the Federal Reserve has a dual mandate. They have a mandate to keep employment…

It’s the on- I think it’s the only central bank in the world that has a dual mandate, which is to target a low unemployment rate, but to also target in- um, a low inflation number. And the Federal Reserve has, has kinda decided that two percent is, is their target. And so– And then they haven’t really stated what their ideal unemployment rate is.

Theoretically, somewhere probably between four and five percent. And we’re right there on the unemployment rate, and then we’re above that on the inflation rate. And so what they’re really trying to do is raise interest rates to slow down consumption, right? So they’re trying to slow down consumption enough that it allows prices to fall back in line.

And if prices fall back in line, that means inflation falls back into line, and then they get the two percent they’re looking for. And, you know, the crazy thing is, from a business owner perspective, we think, “Well, [00:03:00] gosh, no, the Federal Reserve raised interest rates last week.” And they did, right? They, um, and they’ll probably raise it again.

And the, the market, the financial markets actually initially reacted the way you would have thought, which is bond prices fell, um, or interest rates fell slightly, then picked back up a little bit, and the stock market tanked. The following day, we, we actually had a little bit of the opposite reaction, which is the stock market started to take off and bond yields started to fall again, and I think that’s the positive, right?

The market is seeing that the Federal Reserve really wants to hold inflation in check, and market expectations really matter here. And so we’ve got a Federal Reserve that has shown that they’re committed to actually lowering inflation. And so the exact opposite of what a lot of business owners would have thought, which is, as the Federal Reserve raised interest, or raised the short-term interest rates, the long-term interest rate would rise as well.

That actually isn’t what happened. What we’ve actually had happen here over the course of the last [00:04:00] couple of days is they raised the short end and the long end fell. And so that’s a good thing for a lot of our business owners because so many Interest rates that we consumers and businesses end up touching are, are tied to, you know, the 10-year US Treasury or some component thereof.

Some of them are prime-based, right? I get that. And so those rates have, have risen some, but 30-year mortgages, um, and a lot of, um, o- of other consumer and business-based loans are, are tied off of that 10-year or some component thereof, some imaginary var-variation thereof. And so if they’re raising on the short end, but we can get the long end to fall, especially for those folks under home builders, right?

So the, that long end can fall some, and that’s really beneficial. And so what they’re really trying to do is bring that expectation, that inflation expectation, to the point where the market doesn’t expect runaway inflation. If they’re not expecting runaway inflation, then they can get that [00:05:00] 10-year to fall.

If they can get that 10-year to fall, then they can help the housing market. They can help those borrowers that, that are tied to those metrics, and so that’s what they’re aiming for. So the Federal Reserve’s doing their part, which is trying to manage inflation expectations. Now, unfortunately, we also need Congress and the administration, uh, to figure out something from a spending perspective ’cause that’s gonna drive inflation expectations over the course of the next 10 years as well.

But at least right now, I think we’ve got the Fed doing the right thing to help you as the business owner have the opportunity for lowering borrowing cost over the course of the next couple years. If you liked today’s video, hit the subscribe button down below, or better yet, just leave us a comment

ORIGINAL MEDIA SOURCE(S):

William Bissett: Why the Fed Raising Rates Isn’t the Bad News Most Business Owners Think | Portus Perspectives

Originally Recorded on September 22, 2026

Portus Perspectives: Episode 53

By /Published On: November 11, 2026/