Views: 1 Author: Site Editor Publish Time: 2018-07-04 Origin: Site
Since 2008, there has been a financial crisis, and in order to influence economic activity and to bring the economy back, the Federal Reserve Open Market Committee set the federal funds rate to 0 or 0.04. MeanWhile The Fed had increased rate a few times by a quarter of a percent each time. Here some things can affect farmer when the interest rates rised.
Due to the Fed took action this June to increase that overnight rate from 1¾% to 2%. Although it's still relatively low in the history, while the economy heats up, with new tax laws and low unemployment, the Fed is increasing rates because it doesn't want the economy to overheat and trigger ground cover inflation. It is doing it in a measured pace, because if it goes too quickly, that will stifle the economy and we'll go back into recession again.
Farmers’ day-to-day operational funds, using an open line of credit, are more impacted than their longer-term borrowing. They're seeing the biggest impact on those open lines of credit and their very short-term borrowing. And the 10-year treasury is about 2.9%. There's not much of a difference between the short end and the long end, so there is less of a premium to borrow longer term.
Due to the big story is trade policy between the U.S. and China. Global Agriculture shade net markets react around the world. That impacts the Fed's decision on whether it increases rates and how quickly. But Farmers with long-term fixed mortgages are locked in, customers who are on adjustable loans getting ready to adjust can see a pretty significant increase.
It comes down to the terms of their loan. We really encourage borrowers to make sure they understand their loan agreement. If farmers were using short-term money that was very inexpensive two or three years ago, they may look at that differently as the short-term rates increase.