A longtime customer and I were visiting recently, and our discussion moved toward discount rates. We both thought the current Federal Reserve rate, which is down a bit from last year, is fairly spot on. Of course, many will always wish the rate was lower than at present, but it’s my perspective that it would take another event like the pandemic to get rates as low as we saw in 2020-2022 when they were less than 1 percent.
This customer and I were both were in business in the early 80s when inflation was 12-14 percent, and I can remember quoting projects when we never knew what tomorrow might bring with updated costs from our suppliers and subcontractors. Then along came Paul Volcker, chair of the Reserve at the time, who was famous for raising the discount rate to a staggering 21 percent. This makes today’s rate of 3.75 percent seem like a dream.
Interest rates have always reflected the moment we’re living in. If history teaches us anything, it’s that stability is easier to appreciate once you’ve seen what volatility looks like. While markets rise and fall, a long view shaped by experience tends to be the most reliable guide.
