Brewers Association (BA) staff economist Matt Gacioch examined the Federal Reserve’s half-point rate cut on Wednesday and the potential impact for small businesses, including craft breweries. Major media outlets have described the rate cut as “jumbo-sized.”
Gacioch admitted that “it would be a fool’s errand to try to make specific predictions” around how the rate cut would affect the craft brewing industry in the short term due to the lag that follows monetary policy, but there is a historical view of “what small businesses can reasonably expect.”
Lower rates historically bring about “more accessible financing on facilities, equipment, and other means of production” and “the cost of money” becoming “cheaper” leading to an injection of capital for business to accelerate. However, with lower demand for craft beer, investing in expanding production probably isn’t the right move with the trade group estimating that “only 52% of capacity at craft breweries” was in use in 2023.
Gacioch wrote: “Instead of adding capacity then, the industry could see continued growth into contract and alternating proprietorship models as breweries use relatively cheaper money to explore lower risk channels for new product innovation and market expansion.”
Looking at the labor market, Gacioch wrote that “minimal growth within craft” compared to other sectors “could mean more competition … to hire and retain solid talent at a reasonable rate.” With “additional jobs in tangential industries,” workers may have the leverage to “demand higher wages.”
The indirect impact of the rate cut could lead to an increase in spending among consumers, who may have a few extra bucks due to lower interest rates on mortgages, car loans and credit cards.
Gacioch wrote: “Like most changes in a complex economy, it’ll be the businesses that can best adapt to disruptions in the status quo that are best able to thrive. Depending on how inflation and employment data continue to trend over the coming months and years, this rate adjustment from the Fed will likely not be the only one in the near term.”
The analysis also covers past results of the BA and Harris Poll survey of craft drinkers, the correlation between lower rates and beer shipments and potential declines in input costs.
Also looming on a federal level is a potential government shutdown on October 1, barring Congress reaching an agreement by the end of the month. On Wednesday, House Republicans voted down their own plan due to disagreements over potential attachments to the short-term funding legislation.
BA senior director of federal affairs Katie Marisic cautioned brewers that they should “submit any upcoming approval requests or applications as soon as possible to avoid longer wait times on the other end of any shutdown,” as “non-essential” operations at the Alcohol and Tobacco Tax and Trade Bureau (TTB), including reviews and approvals of labels, formulas and brewer’s notices, won’t take place until the government reopens.
A government shutdown would also create a backlog of approvals and reviews.
Marisic added that brewers should still make any previously scheduled payments of federal excise taxes or file a brewer’s report of operations even if the government shuts down.