Fed Finally Raises Interest Rates

December 16, 2015 01:36 PM
 
Fed Finally Raises Interest Rates

The Federal Reserve has decided to raise interest rates for the first time in nearly 10 years.

In a highly anticipated announcement, the Federal Open Market Committee on Wednesday said that it would boost the federal funds rate—which is what banks pay when they borrow or lend money from other banks—to one-half percent.

“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent,” the Federal Reserve explaining in a statement.

Does this mean the beginning of rising interest rates? Probably. But it probably won’t happen overnight.

“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the statement said. “However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

The decision could have mixed results for farmers. Although the Fed is raising rates, the small size of the rate hike is unlikely to hurt growers’ ability to borrow. And while rate increases typically lead to lower grain prices, according to farmdoc Daily contributor Jeffrey Dorfman, the Fed’s move could weaken the dollar, which would boost demand for American exports.

Grain and soy prices are down after the announcement, with March futures falling more than 7 cents for corn, more than 4 cents for soybeans and nearly 11 cents for wheat.

Still, growers shouldn’t overreact to these initial moves.

“If you see a big move in commodities futures prices after the Fed’s first announcement of a rise in interest rates, do not panic,” Dorfman says. “Things should settle down.”

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