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Clues to the interest rate mystery

Audrey Kittrell 06/24/2011 @ 4:04pm Editorial Intern for Successful Farming magazine and Agriculture Online

All cards are in play right now as grain markets, weather and the U.S. Dollar index are up in the air, and all influencing the long-awaited sign of a change in the current historically low interest rates. 

Before data from next week’s USDA acreage and grain stocks is reported, many are placing their last bets on the future of the economy and how it will affect farm loans. 

"We know it is just a matter of time until interest rates rise.  Grain production will expand significantly this year...A good crop year worldwide will let some of the air out of the grain price bubble and the resulting land bubble.  Two good years will be the end of the high priced binge for grain farmers and will result in some bad hangovers," Farm Business Talk member, fernwood, predicted.

The Federal Open Market Committee (FOMC) met this past Tuesday and Wednesday to discuss the current state of federal funds.  The FOMC released a statement saying, “The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions association with the tragic events in Japan.”  The Committee decided to keep the target range for federal funds rate at 0 to .25 percent and is foreseen to stay low for an extended period. 

Current economic events in Greece, numbers from the internal housing market and unemployment rates all continue to disappoint, raising concerns that economic growth may not happen as quickly as expected.  As a result, the million-dollar question remains whether the lull is a temporary issue, or whether the economy is headed for a double-dip recession as suggested by Yale economist Robert Shiller.

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