Inflation is moderating, but still well above the Federal Reserve’s 2% inflation goals. The Labor Department reports the January Consumer Price Index up 6.4% in January from a year earlier. That is down from the peak of 9.1% in June, the highest reading since 1981. However, for January the CPI increased .5%, compared with a .1% increase in December.
The FOMC uses the CPI data to gauge inflation, along with the Personal Consumption Expenditure or PCE. Both are indicating while the Fed may not be as aggressive with rate hikes as they were in 2022, they still have some work to do to get to their target of 2% inflation for the U.S. economy. Darin Newsom, Sr. Market Analyst, Barchart says, “We’re going to continue to see interest rate hikes probably still the same variety, 25-basis point moves. I don’t expect the U.S. Federal Reserve to come in full borer and go back to 50-basis point moves anytime soon. I don’t think it’s that hot of an inflation market you know, but we’re still seeing higher prices and so we’re still going to see interest rate hikes over the course of 2023 that’s just the way it is.”
That means it will cost much more to borrow money, especially for farmers buying land, equipment and for inputs to plant this year’s crop. Ag finance experts say that means they need to be strategic with their operating notes and long-term debt financing. Ashley Arrington, Director of Real Estate, Ag Resource Management says, “I mean lines of credit are normally at a variable rate. Well, this year with the Fed still talking about other rate increases on the table it probably makes sense to discuss a fixed rate. So, a fixed rate on an operating line to take that risk off the table.”
Ag finance experts are also recommending that if farmers have grain they can sell to generate some cash for some of all of their operating costs that might a better strategy than paying the high interest cost for borrowing money.
One key market indicator of higher interest rates ahead in 2023 is the yields on 10-year treasury note yields have bottomed and are starting to turn higher again at around 3.76%.
