Jun 18, 2018

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Analyst: The Economy is Going Over The Speed Limit

By Ashley Davenport

For the second time this year, the Federal Reserve raised its benchmark interest rate one quarter point, citing solid U.S. economic growth and rising inflation.

According to the Fed, economic growth has been “rising at a solid rate,” and there could be four rate hikes in 2018.

“We hit a cycle where for the last 10 years we didn’t move interest rates and our government was keeping interest rates artificially low,” said Tommy Grisafi, branch broker with Advance Trading, Inc. “We’re doing what’s called getting back to normalization.”

As of May, the national unemployment rate is 3.8 percent, a 10-year low. Grisafi said by raising interest rates, it’s one way to curb the heated economy.

On-farm costs are expected to increase as the cost of storing grain is increasing with the rising interest rates.

“When you think about interest expense as a component of total earnings or profits, we’re still like 12 or 13 cents of every dollar of earnings is spent on interest,” said Jackson Takach, economist with Farmer Mac.

On the farm side of things, there’s concern that these rates could be like those of the 1980s, but neither Grisafi nor Takach believe we will be seeing those types of interest rates.

“We’re a long ways off from really having a problem with interest expense causing a problem with delinquencies and defaults,” said Takach.

Hear why Grisafi says there isn’t much of a correlation between grain and commodity markets and the stock markets like there was in the “old days” of 2008 on AgDay. 

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