Assessment of the Economic Climate

The project’s final phase incorporates an overview of current interest rates and inflation
rates. It also evaluates how these interest rates will affect FedEx Corporation and UPS Inc.’s
short and long-term decisions and cash flow management. This paper further explores the ethical
concerns affecting businesses due to the Sarbanes-Oxley Act of 2002. Inflation rates and rates of
interest impact all companies’ short and long-term decisions since they influence the bond rates
that must be paid on their debts. These critical factors have an impact on a company’s cash flow.
Nonetheless, knowing the current interest and inflation rates makes it easy to analyze their
impact on the two companies.

Interest Rates

After the financial crisis of 2008, interest rates were decreased to encourage the money
supply in the economy. The 10-year Treasury yield is one of the most often used interest rate
benchmarks. The 10-year government bond yields are monitored by the Federal Reserve, which
sets federal interest rates. This year’s 10-year bond yield is 2.88 percent, which has been
relatively steady over the preceding years (Resource Center. 2022). On the other hand, the
federal funds rate is currently at 1.99 percent. Although this figure appears low, it is higher than
in previous years. For example, in 2017, the percentage was 1.5 (Board of Governors of the
Federal Reserve, 2022).
The economy benefits from lower interest rates because companies may take loans to
invest in expansion. As a result, goods and services become more affordable. In the
transportation industry, fuel costs have generally remained consistent as a result of low-interest
rates, and this benefits both UPS and FedEx. Contrarily, high-interest rates in the market can
have a detrimental impact on the growth of these companies. FedEx Inc. is more likely to be

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impacted by a rate hike, as planned acquisitions are likely to compel the company to rely on debt
financing to keep operations afloat. UPS should be substantially unaffected by increased interest
rates because it plans to finance capital expenditures with cash from operations rather than debt.
However, interest rates hikes will still impact the company’s current $2.98 billion debt
repayment.

Rate of Inflation

According to the Board of Governors of the Federal Reserve System (2022), a long-term
inflation rate of 2.5 percent is best compatible with the [Federal] mandate of market stability and
high employment. When the inflation rate rises, the currency weakens, impacting short-term
corporate investment. In 2020, the United States inflation rate was 1.23 percent, down 0.58
percent from 2019 (Resource Center. 2022). This inflation rate is in line with the standard
proposal of the Federal Open Market Committee. The inflation rate has been relatively stable,
and the trend is expected to continue in the coming years. This stability, however, is unlikely to
have a significant influence on UPS or FedEx’s short and long-term portfolios.

Federal Reserve’s Plan

The economy continued to recover from the 2008 financial crisis, and the Federal
Reserve resumed hiking interest rates in May 2018. The Federal Reserve is widely expected to
keep raising interest rates. However, several issues have developed due to the fiscal stimulus,
which, combined with the economy’s stable growth and high employment rates, has led
stakeholders to believe that rate hikes are highly likely to increase each year. Interest rate hikes
will have far-reaching economic consequences for UPS and FedEx Corporation, including higher
borrowing costs and fewer incentives to invest or use debt financing to operate since margins
will be tighter.

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The rate hike has little impact on UPS Inc. because it does not use debt to fund
operations. On the other hand, rising interest rates could slice into their profit margins, especially
if additional fees accompany them, hindering them from timely repayment of their $2.38 billion
debt. The hike in rates will affect FedEx and UPS due to rising costs. On the other hand, FedEx
is affected more since its funding margins are tighter. The company uses debt financing to fund
some of its operational costs. As such, it may need to keep a close watch on this and look into it
further in the future to avoid losses.

Ethical Concerns

Under the Sarbanes-Oxley Act of 2002, companies must report financial information
annually about the stability of the organization and its internal control systems and procedures.
They are also required to manage effectively short and long-term debt and other financial
instruments (Soxlaw.com, 2022). Both corporations believe that brand equities are risk
considerations and justifications for ensuring compliance with the Sarbanes-Oxley Act and other
federal requirements. However, while this does not verify ethical behavior, recognizing the
necessity of compliance and availing of the required information is a huge step forward and a
sign that FedEx and UPS are acting ethically.

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Reference

Board of Governors of the Federal Reserve System. (2022). Recent developments.
https://www.federalreserve.gov/
U.S. Department of Treasury. (2022, April 18). U.S. Daily treasury par yield curve rates.
https://home.treasury.gov/resource-center/data-chart-center/interest-
rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2022
Soxlaw.com. (2022, March 3). Understanding and complying with the Sarbanes-Oxley Act
origins. https://www.soxlaw.com
Trading Economics. (2022). United States inflation rate. https://tradingeconomics.com/united-
states/inflation-cpi