The rate-cut cycle many businesses planned around is over for now. The US Federal Reserve held its benchmark rate at 3.75% to 4% on October 28, 2026, six weeks after raising it for the first time since 2023, and two policymakers wanted to hike again. The European Central Bank and the Bank of England are also holding with a tightening bias as an energy shock pushes inflation back up.
For small and mid-sized enterprises (SMEs), the practical message is clear: plan for borrowing costs to stay at current levels or rise modestly into 2027, not fall.
What the Fed Decided on October 28
The Federal Open Market Committee (FOMC) voted 10 to 2 to keep the federal funds target range at 3.75% to 4%, according to the official FOMC statement. Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissented, preferring a quarter-point increase.
The statement described economic activity as "expanding at a strong pace," with resilient domestic spending, strong productivity growth and robust capital investment. On prices it was blunt: "Inflation remains elevated."
The hold followed a unanimous 25 basis point hike on September 16, 2026, which lifted the range from 3.5% to 3.75%. In the September Summary of Economic Projections, the median Fed official expected the federal funds rate to end 2026 at 4.1%, which implies one more quarter-point increase.
Why Inflation Turned Back Up
The main driver is energy. US consumer prices rose 3.7% in the 12 months to September, up from 3.4% in August, according to the Bureau of Labor Statistics. The energy index alone was up 20.4% over the year.
Core inflation, which excludes food and energy, rose a more moderate 2.6%. That gap matters. It suggests the problem is still mostly an energy price shock rather than broad-based overheating. Central banks are tightening anyway because they want to stop higher fuel and transport costs from feeding into wages and other prices.
ECB and Bank of England: Holding, With a Hawkish Bias
The Fed is not alone. On October 29, the European Central Bank kept its deposit facility rate at 2.50%, after raising it by a quarter point in September. Its statement warned:
"Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook." (European Central Bank, October 29, 2026)
The ECB said it is "not pre-committing to a particular rate path." ECB President Christine Lagarde also announced she will step down in February 2027, adding leadership uncertainty to the outlook.
In the UK, the Bank of England held Bank Rate at 3.75% in September by a 6 to 3 vote, with Huw Pill, Catherine Mann and Megan Greene voting to raise it to 4%. UK CPI inflation was 3.1% in August, and the Bank expects it to climb to around 3.75% in the final quarter of 2026 and slightly above 4% in early 2027. The Bank attributes much of the overshoot to motor fuel prices following the Middle East conflict. Its next decision is due on November 5.
What This Means for SMEs
Smaller firms tend to feel rate changes faster than large corporations, because more of their borrowing is short-term or floating-rate: business credit lines, credit cards, equipment loans and many US Small Business Administration (SBA) 7(a) loans, which are typically priced off the prime rate. When the Fed raises its target range, banks usually move the prime rate up by the same amount.
- Variable-rate debt costs more. The September hike has already fed into prime-linked loans and credit lines. Another hike in December would add a further quarter point.
- Refinancing windows have narrowed. Businesses that delayed refinancing while waiting for cuts are now facing higher, not lower, rates.
- Input costs are rising at the same time. A 20% annual rise in US energy prices pushes up fuel, freight and utility bills, squeezing margins while financing gets more expensive.
- Demand is holding up, for now. The Fed's own assessment of strong growth and resilient spending suggests customer demand remains supportive, which gives many firms room to adjust rather than retrench.
Practical Steps for Business Owners
- Map your rate exposure. List every facility that floats with prime, SOFR (the Secured Overnight Financing Rate), Euribor or Bank Rate, and calculate what another 25 to 50 basis points would cost per month.
- Consider fixing part of your debt. If a lender offers a reasonable fixed rate or a rate cap, locking in part of your borrowing can protect cash flow if hikes continue.
- Prioritize capex with fast payback. Projects that cut energy use or labor costs quickly are easier to justify at higher rates than long-horizon expansion.
- Tighten working capital. Faster invoicing and collections reduce reliance on expensive revolving credit. See our coverage of embedded banking and SME cash flow tools.
- Review energy and freight contracts. Where possible, renegotiate or hedge fuel and utility costs, which are the main source of the current inflation pressure.
Key Dates to Watch
- November 5: Bank of England rate decision.
- November 10: US CPI report for October.
- December 8 to 9: Final FOMC meeting of 2026, with updated economic projections.
- December 17: ECB monetary policy meeting.
If energy prices ease and core inflation stays near current levels, central banks may stop after one more move. If fuel costs keep climbing, the case for further hikes grows. Either way, businesses should budget for today's higher borrowing costs to persist through at least the first half of 2027, rather than counting on cuts.
