3 CFOs gauge rate cut’s impact
The Fed’s rate cut has handed floating-rate debt borrowers an immediate tailwind, but CFOs are still grappling with new strategies that could elevate the move.
After the Federal Reserve cut the main rate a half point on Sept. 18, many finance chiefs got a quick dose of financial relief: Immediately CFOs at companies holding floating rate debt adjusted their cash flow projections to account for decreased interest rate expense, said Nick Araco Jr. CEO of The CFO Alliance, a subscription peer network for finance leaders.
Other finance chiefs looked past the single cut to its broader slower-rolling impact on longer-term strategies while also taking comfort in what they saw as a new lower-rate era signaled by the Fed’s projection that the federal funds rate will drop to 3.4% next year and 2.9% in 2026. Publish
“If you look at the dot plot at the end of this year and next [the Fed] is anticipating getting to around 3%...that I think for us would be a Goldilocks kind of environment,” said Tom Panther, CFO of payments player Corpay, noting that’s where the Fed doesn’t have to overcut or be restrictive. Lower rates also give clarity about the economy’s “direction of travel” and help Corpay’s customers to grow. “What the Fed articulated and foretold was they’d get to the glide path and that’s good for us,” he said.
Exactly what happens next and how that tailwind and other rate-cut fallout will boost or pressure finance teams may take some time to emerge. Several CFOs told CFO Dive they had not made any changes to their debt stack in the wake of the cuts yet, but they are reviewing the fresh opportunities that the falling cost of capital generally gives them for new strategies going forward. CFOs are contemplating their debt and cash positions, as well as their hedging and merger and acquisitions strategies — and their own customers’ reactions.
“Most CFOs are currently monitoring for any behavioral changes in both their suppliers and customers before capitalizing on bigger opportunities or mitigating longer-term risks associated with rapidly changing financial conditions,” Araco said in an email response to questions.
CFO Dive asked Panther, CFO of Atlanta-based payments company Corpay, Omar Choucair, CFO of the Dallas-based financial close software provider Trintech, and Jim Cox, CFO of Boise, Idaho-based Clearwater Analytics, an investment accounting solution provider, how they are thinking about their debt and strategies in the wake of the cuts.
Read the article on CFO DIVE: https://www.cfodive.com/news/3-cfos-gauge-ratecuts-impact-federalreserve-mergersandacquisitions-debt/728475/