The Pros and Cons Of Interest Rate Increases

Very few people were surprised last week when the Federal Reserve increased the federal funds rate target range by 0.25%.  With their positive outlook for the U.S. economy, the Feds plan on continuing to raise interest rates well into 2018.  Mike Zuzolo from Global Commodity Analytics this hike will help meet inflationary expectations, and eventually boost commodities.

“And help commodity prices, I think we’ve already see the gold markets react, the crude oil market has stayed at its elevated levels of two year highs and the dollar fell pretty precipitously after the Federal Reserve made their announcement.  But, I would expect a similar reaction in the commodity markets once the federal government passes this tax reform bill.”

Higher interest rates, on the other hand, will impact the cost of doing business on the farm.  Even though rates are still manageable for producers, Zuzolo said it may be time to take control of some operating costs.

“Producers that have a lot of shorterm money that’s tied up, some of them with operating loans that that are not fixed in terms of interest rates.  If you have anything between two and five years,  and even stretching out to seven years, I think it’s time to get those locked in, if I make a general broad brush type recommendation.”

Zuzolo says that farmers may be better suited leaving 10, 15 and 30 year loans open at this point.

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