The Fed's decision to postpone the increase of interest rates is good for businesses hoping invest in projects now. With near zero interest rates the companies can borrow funds for projects they feel will grow the company. With rates being so low the burden of debt is much less of a liability and companies who are looking to take on new ideas, the time to find funding for those is now. Firms invest in digital technology to increase worker productivity thus increasing profits and hopefully passing those increases down to the employees. Wage growth has been slow and the article points out that wages have gained less than 2% from 1979 to today, adjusted for inflation. This is a problem. The economy has grown over the years but workers are not seeing much of a pay increase.
If businesses were to invest in technology for the future they could increase employee production and potential wages. This helps the economy grow and put more money into individuals' pockets. Higher income per person results in more spending which is typically associated with higher levels of living. The market will decide how and when to invest in such projects. If there is a time it might be now before rates increase.
http://www.usnews.com/news/articles/2015/09/24/does-business-investment-actually-boost-worker-productivity
2 comments:
I believe the speculation of an increase in interest rates will increase the funding for projects currently. Everyone knows that the interest rates will be raised within the next couple of months and loans are much cheaper now. Because of this, there will be an increase in projects and in turn efficiency, productivity, and wages
I agree this can be a good thing for companies and they will be able to increase worker productivity which could in turn increase their profits, but the company must know all the facts and consequences that could arrive after the interest rate hike in a couple of months. Because "There's no guarantee those companies will get a full return on their investments" and therefore lose a lot of money, money that they could possibly never recover.
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