How the Fed’s Decision to Keep Rates Steady Impacts GSE

May 1, 2024
While interest rates can influence the GSE market, there is often a lag effect from the time rates are set.

The Federal Reserve held its key interest rate steady on May 1 and gave no signal that it plans to lower it soon, as inflation has impacted the economy, according to reporting by Paul Davidson, Daniel de Visé and Medora Lee for USA today.

The report cites a statement issued after a two-day meeting, in which the Fed said: “In recent months, there has been a lack of further progress toward the (Fed’s) 2 percent inflation objective.”

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What Does this Mean for the GSE Market?

The ground support equipment (GSE) market often reacts to changes in interest rates a few months after consumer spending habits change.

“Interest rates have a lag effect, with about a six-month lag, to what the Fed does. What we are seeing now is the effects of raises in interest rates that happened last summer,” explained Jason Gendron, CEO at Mercury GSE, which specializes in servicing, renting, leasing and selling GSE.

Higher interest rates drove up the costs of borrowing for those looking to purchase GSE, and manufacturers also endured higher costs as inflation increased.

It can be difficult to retrace pricing once everyone becomes accustomed to higher prices for goods and services, according to Gendron. As a result, he envisioned more leasing could become the norm GSE industry.

While lower interest rates can stimulate economic activity and make borrowing more affordable, reducing rates too quickly can contribute to a recession.

The GSE market has unique elements due to it being tied to other segments of the industry, like commercial airlines and air cargo. As a result, the impact of interest rates could be a secondary factor behind broader economic challenges in aviation, Gendron pointed out.

Additionally, replacement cycles for GSE can be driven more by factors other than short-term changes in interest rates, such as operational needs, technological advancements, breakdowns of GSE, and regulatory requirements like electrification or emission mandates that might take priority.

Although much of the GSE industry may be insulated, some individual segments of the market can be influenced by interest rates more than others. Original equipment manufacturers (OEMs) and distributors, for example, can be more sensitive to these fluctuations due to the capital-related factors and supply chain dynamics.

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About the Author

Josh Smith | Editor