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Another Move in the Right Direction

It may not be time to pop the champagne if you were waiting for interest rates to fall, so that you can expand your farmland holdings or finance big equipment. But inflation slowed in the most recent federal report.

The Consumer Price Index (CPI) rose 3.4% in April, according to the latest federal report. That represents a slight decline from March’s 3.5% increase from the previous year.

For perspective: CPI was 8.3% in April 2022. And it was 4.9% in April 2023.

The chart from the U.S. Bureau of Labor Statistics shows that following its rapid decline for the next year after April 2022, inflation has been stubbornly elevated above the Fed’s preferred 2% rate.

Inflation now, while slightly smaller than the previous month’s change, is still higher than it was last June. And that wasn’t the plan that the Federal Reserve Board envisioned by this point of the recovery.

Federal Reserve Board Chair Jerome Powell acknowledged this week that rates still haven’t fallen to where he would have expected. “We did not expect this to be a smooth road, but these were higher than I think anybody expected,” Powell said during a conference in Amsterdam on Tuesday.

Borrowing costs remain elevated at 5.3%.

“What that has told us is that we will need to be patient and let restrictive policy do its work,” Powell said.

Powell also conceded that his confidence in inflation’s fall has taken a hit.

“My confidence in that is not as high as it was, having seen these readings in the first three months of the year.”

Powell wants to see more data that the economy has sufficiently cooled before he considers a rate reduction, he said.

Optimism in the financial markets has cooled along with the Fed leader’s immediate forecast. As recently as March, there was speculation that there could be three rate reductions this year beginning in June.

But as inflation persisted above 3%, speculation eroded to two rate reductions. The first cut was expected in September.

But the financial markets no longer expect two rate cuts this year. They now expect just one. CME FedWatch shows that forecasters expect a reduction to occur at the Fed’s meeting in November and that will be the only change in 2024.

It may not be the series of cuts that borrowers or potential borrowers had wanted. But it also isn’t rate increases that brought worry as higher inflation has lingered.  


American Farmland Owner Hayfields mountains


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