Should You Worry About Rising Interest Rates ?

September 28, 2016 08:16 AM
Should You Worry About Rising Interest Rates ?

Overall U.S. economic strength points to a pre-2017 increase

Many producers are more leveraged today than they have been in years. One statistic underscores that reality: The drop in farm income over the past three years is the steepest decrease since the Great Depression, according to CoBank.

Still, America’s economy as a whole is improving, leading some to think an interest-rate hike is ahead.

“Personally, I think the economy is better, maybe significantly better, than Washington leads us to believe,” says Jim Bower, market analyst at Bower Trading. “The traffic, construction, road building, movement of people. It looks strong to me.”

A robust economy usually leads to higher interest rates. As of press time, Goldman Sachs estimated the odds of interest rates increasing in late September at 55%. Part of the firm’s reasoning can be attributed to comments by Federal Reserve Chairwoman Janet Yellen, who in August addressed the annual Economic Policy Symposium in Jackson Hole, Wyo. 

“In light of continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen says.

She made it clear that by the end of 2017, interest rates could range from 0% to 4%. 

The federal jobs report released after the Federal Reserve retreat did not have overwhelmingly good news. It showed the U.S. added 30,000 fewer jobs than expected for a total of 151,000 new nonfarm jobs. Although the gain proved weaker than anticipated, the report showed job increases this year have remained steady, supporting an interest-rate hike before Jan. 1. 

Long-term interest rates are bound to go higher, Bower says.

“I can remember when guys had interest rates of 16% to 20%, and right now we have negative interest rates in parts of the world,” he says. 

He recommends farmers pay extra attention to the market, which traditionally is unsteady toward the end of an election year. 

“I’ve been around a long time, and around election time, things get a little dicey,” he says. “You have to be extra careful, put some positions to the sideline and be a little more aware of the market. If you see an opportunity to lock in a good interest rate, do it.” 

The Fed’s policy-making committee is scheduled to meet again in December.

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