Rate Reversal: Can We Expect an Interest Rate Cut in the Near Term?
February 28, 2026
For the first time since 2020, the Federal Reserve cut interest rates — and they reduced the rate by fifty basis points (0.50 bps), a larger cut than the expected 0.25 bps. The prime rate now sits at 8 percent. So what does this mean for the business owner, and will the Fed continue its rate reduction path?
Economists at JP Morgan Chase had been calling for a 0.50 bps rate cut since July and were encouraged to see this reduction go through in September. There is speculation the Fed may reduce interest rates by another 0.25 to 0.50 bps at the early November meeting. This reduction will most likely be contingent on further softening of both the October and November jobs reports, CPI, and other inflation measurements. The rate reduction is great news for borrowers, as its effects should begin to trickle down to lending institutions.
In addition to the rate reduction, there was a recently overlooked victory for banks that should greatly benefit business owners and consumers alongside reduced rates. Regulators had been pushing for banks to carry additional capital as a safeguard for the economy due to potential portfolio risk. In practice, this meant that for every dollar of capital a bank had to tie up on its balance sheet, that was a dollar it could not deploy as loans into the economy.
Recently, bank regulators agreed to relax capital requirements. Combined with the rate reduction, this is a significant win for borrowers — banks may now utilize the additional capital to lend. Lending institutions also typically push hard to grow their portfolios in Q4 to enhance year-end results. As a result, lenders may become more aggressive in pursuing new business, which could mean lower lending rates for the market.
Year to date in 2024, Harry Fry & Associates has seen approximately a 60/40 split between customers purchasing used versus new equipment. There are a couple of key reasons for this.
First, just as prices on everything from groceries to cars and housing have increased, so have prices on new equipment. Most manufacturers have implemented yearly price increases since 2020. With both interest rates and equipment prices elevated, many customers are hesitant to commit to brand-new equipment and are opting for used instead. From the customer's perspective, the old adage applies: "shiny old or shiny new, you get the same rate" — typically. However, lower demand and supply of new equipment creates less availability of used equipment as well. It is a vicious cycle.
Second, regarding new equipment, most in the industry are aware that manufacturers are still behind on their normal production numbers and goals, with allocations being limited to dealers and distributors for some models in 2025. Even though some materials in the supply chain are easing, the continued issue is the lack of skilled labor.
The lack of skilled labor is a post-COVID challenge that may be difficult to resolve in the short term and could take years to fully address. During the pandemic, many quality, skilled workers permanently exited the labor force, and not enough new workers have replaced them. This continues to constrain manufacturing output across the heavy equipment industry.
During the recent SC&RA Workshop in Arizona, we observed that the desire and demand remain positive and optimistic. Even though many owners are keeping an "eye on the sky" — watching the economy closely — they want to make sure they have the appropriate equipment without strapping themselves financially.
The bottom line: the prime rate is at 8 percent, and while rate reductions may be in our future, we may not see the significantly low interest rates we had grown accustomed to. Those low rates were typically a response to an economic or global crisis. To put it in perspective, a $500,000 loan at 8 percent for 60 months yields a monthly payment of approximately $10,140. If rates were reduced to 7 percent, that same loan drops to about $9,900 per month — a difference of $240.
That is a real cost of money. But if you need the equipment to cover jobs, can you make the payment work? Consider it another way: with the cost of fuel, insurance, and labor all factored in, can you generate enough revenue to justify the expenses? And can you justify the loss of revenue if you don't have the crane?
Only you can answer these questions. But consider this: interest is one cost, and possibly fuel is the only one that may retreat over time.
— Harry Fry, President of Harry Fry & Associates
