Rising interest rate’s possible ag impact

An ag economist says the Federal Reserve’s decision to raise interest rates a quarter percentage point won’t have an immediate impact on many farmers and ranchers.

But Michael Swanson with Wells Fargo says farmers can keep this in mind as they consider how to approach next year’s operating expenses.

“If you’re a business operator, you have to change your solutions based on prices,” says Swanson. “If the price of debt has gone up, you want to use less of it unless you have a compelling reason to use it.”

Swanson says there’s opportunity cost right now.

“You can borrow when it’s cheap and maybe use more of your own money when it’s not so cheap. And secondly, farmers could have cash from recent grain sales and as the Fed has raised interest rates for borrowing, they’ve also raised rates for CDs and deposit rates around the world.”

Federal Reserve Chairman Jerome Powell told reporters there’s been no decision on further changes to interest rates. However, Swanson says the Fed is seeing improvements in food and fuel inflation and wage increases.

“There are some good things the Fed is seeing and Chairman Powell is talking about a soft landing scenario. That could be an indication the Fed could start taking off some of the ratcheting up we’ve seen in the last year or so.”

Swanson says a lot can happen with lending rates between now and winter, but farmers should continue to monitor what happens at the Federal Reserve.

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