(Washington, D.C.) -- Citing a need for lower interest rates, the Small Business Survival Committee (SBSC) today released a new report examining Federal Reserve monetary policy, tax issues, and how they impact access to capital for small businesses.
In the report ("Small Business, the Fed and Access to Capital"), SBSC chief economist Raymond J. Keating details the importance of small businesses in the U.S. economy. Mr. Keating points out that "one of the biggest hurdles for small business owners is acquiring the financial capital necessary to get started, expand or re-tool."
Keating notes the importance of venture capital for start-ups and small business, and explains the positive impact that the 1997 capital gains tax cut and low-inflation Federal Reserve monetary policy throughout much of the past decade have had on incentives for investing in entrepreneurial enterprises. Recent developments in the credit markets for small business are also examined.
Regarding the Federal Reserve's tightening of monetary policy in late 1999 and earlier this year, Keating writes: "These rate hikes were grossly misguided policy measures. Market indicators pointed to no threat of inflation."
Keating continued: "Misguided Fed policy seems to have restrained economic growth recently, and now threatens us with a more severe economic slowdown or even a possible recession. As always, the Fed's actions tend to hit small businesses early and hard. As Alan Greenspan noted in a December 5, 2000, speech: 'Financial markets have continued to function reasonably well, and credit continues to flow, although admittedly with reduced availability to less-than-investment-grade borrowers and at interest spreads elevated to press on profit margins of those lower-rated borrowers.' Obviously, this is trouble for small businesses."
Keating advised: "At the next meeting on December 19, the Fed should embark on a series of interest rate cuts-whether such actions would be too late or not to avoid some severe economic costs is an open question."
For a copy of the full SBSC Entrepreneurial Economy report, visit SBSC's website at
http://www.sbsc.org/. Please call SBSC at 202-785-0238 with any questions. SBSC is a nonpartisan, nonprofit small business advocacy group with more than 60,000 members across the nation.
