In Depth

No Rate Hike: A Short-Term Boon for eCommerce. Maybe.

“Will they or won’t they” – that question has been answered by the Federal Reserve. For now at least.

The Fed said Thursday that interest rates are going to stay put, at least in the very near term. That adds at least some more time to an accommodate policy that has kept rates low – and some might carp, artificially low – for the past several years. 

It’s interesting to note that the powers that be called out the international scene specifically. In an interview with reporters Thursday, Fed Chair Janet Yellen stated that “the situation abroad bears close watching,” in a nod to the continuing volatility in both China (in terms of the real economy and the stock markets) and the emerging market economies as well. The heavily picked over press release was parsed, as always, by investors as well – and this time around the release spoke of “global economic and financial developments,” which is a deviation from previous language. Yellen also told reporters her institution wants to “take a little more time to evaluate the impacts on the U.S. economy.”

It will take a little more time to evaluate the impacts of the Fed decision on eCommerce as well. On the surface, at least, the event is the same, but the timeline gets pushed out. Rates most likely are going to rise, by explicit policy or by the mysterious workings of economics. That would come against a backdrop of reasonable inflation (core consumer prices, excluding the volatility of food and energy, was up in the latest Labor Department reading) that does invite a rate increase at some point. But in the meantime, wage growth has been stagnant and there’s always the political football of wage inequality to be tossed around in an election year. 

So rate increases may come, but don’t expect them to be significant, in nominal terms or in terms of impact, here in the United States. 

Such a statement begs a look at lending behavior, and by extension, its effect on consumers and payments and commerce. Rates have been at historic lows for so long that even as banks and other lenders look to gather higher interest payments from their customers (at least the relatively less attractive ones, to compensate for some level of heightened risk, whether real or imagined), lenders are still going to chase business. 

That means borrowing activity, or to put it another way, consumer behavior, is not likely to change much if at all. 

The biggest ticket items — such as home loans, say, or auto loans — are going to be within reach for most consumers, and likely will be for a long time – a few basis points on a mortgage that remains at 3 percent or so may not deter people, and the perception that rates are rising may actually push home buying activity up as would-be homeowners scurry to lock in rates. So businesses that cater to online lending in these fields should still do robust business.

For shoppers themselves, with decent credit and better, credit card deals and financing deals should still be relatively easy to come by, with the 0 percent rates of recent years (come hither, consumer!) maybe inching up by a bit. But that’s unlikely to have people moving away from spending and even splurging, and that is good news for all manner of eCommerce, from grocery deliveries to pricey handbags.

One tell on eCommerce at least within the confines of the U.S.: retail sales were up 0.2 percent in August altogether, which translates into a 2.2 percent increase annually, and that continues a trend of six straight months of stable or rising spend – and that’s even with the tumult overseas.  Key eCommerce pockets such as apparel and electronics saw steady, if unspectacular gains of around 0.2 percent to 0.4 percent.

So, it seems the U.S. consumer may continue to be in spending mode, which bodes well for eCommerce (and the payments industry). But turning away from the Fed for a moment: what of China – that other engine of eCommerce and consumer spending? A true shock to the system could come from China, and could in fact dampen spending enthusiasm here in the states if global economic fears win out. 

In another Yellen callout from this week, the Fed head noted China is seeking to “rebalance their economy,” an activity that may lead to continued downward pressure on inflation. For now, at least, the absence of a Fed rate hike would keep capital from flowing out of China to seek higher returns elsewhere, and prevents rates from rising elsewhere beyond the U.S., which could choke off buying from Chinese consumers, especially cross-border. But China’s slowing growth, due to internal factors, bears watching, as the Fed now notes, even if reactive measures are limited.


Exclusive PYMNTS Study: 

The Future Of Unattended Retail Report: Vending As The New Contextual Commerce, a PYMNTS and USA Technologies collaboration, details the findings from a survey of 2,325 U.S. consumers about their experiences with shopping via unattended retail channels and their interest in using them going forward.