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Fed Policy: Walking a Tightrope with the Economy

Contributor: Brooke Bouma Kohlsdorf

Editor: Dave Price

Eric O'Keefe, Esther George, and Tom Koenig
Eric O'Keefe, Esther George, and Tom Koenig

Where is the U.S. economy headed in 2024? That’ s a question most farmers and landowners are thinking about as they head into the new year. 


The topic was also at the center of a conversation at this year’s Land Investment Expo as moderator Eric O’Keefe, editor of The Land Report, talked with two people who know a lot about the subject matter.


RELATED: Eric O’Keefe unveiled the 2024 Land Report 100, which broke news of Chinese billionaire Tianqiao Chen’s purchase of nearly 200,000 acres of timberland in Oregon. The acquisition took place in 2015. But, until now, had not been revealed publicly in the media. Find out the details here.


Two former presidents of the Federal Reserve Bank of Kansas City, Esther George and Tom Hoenig, spoke during the afternoon keynote session about everything from interest rates to long-term economic outlooks. 


BACKGROUND: Former Federal Reserve Bank of Kansas City President Esther George addressed the unknowns in the 2024 U.S. economy during an interview with American Farmland Owner. Watch that conversation here. 


One of the first things they discussed was inflation and what it means for landowners. George said there is still a slight risk of inflation in 2024, but how to handle it is tricky.  “The dilemma for the Fed is how long to keep interest rates high and when to back off. I’m suspecting that by the end of the year, those rates will be higher, even if they’re lower than they are today because inflation is not projected to come down to the two percent target for another couple years.” 


George also mentioned consumer spending will likely continue to slow, but she doesn’t know if there will be a so-called “soft landing” (a term used to describe a gradual slowdown of economic growth that minimizes harm and avoids a recession) or if the economy will hit a bump along the way.


Right now, she thinks that bump is inflation. And for landowners and farmers, that is creating a lot of uncertainty about what the future holds for the value of land. 


RELATED: The Federal Reserve Bank of St. Louis gives examples of a soft landing and the economic indicators that signal a soft landing versus a hard landing. Compare the two here.  


During the discussion of interest rates, Hoenig also shared his fears about the consequences of the growing national debt and how it will impact the economy. He said, according to the current projection by the Congressional Budget Office, the outlook is not good: 


1.       U.S. debt will go from $34 trillion today to $55 trillion by 2033. 

2.        As a result, our debt will account for 7.5 percent of our Gross Domestic Product (GDP).  

3.       That means less money to spend on things like infrastructure and technology that allow our country to grow wealth.   


“So, we have this enormous fiscal balloon coming at us. That’s because the U.S. is facing 2 trillion dollars from interest of its debt, more defense spending, and entitlement programs that make up two-thirds of government spending.”


EDITOR’S NOTE: Politicians in both major political parties have done little in recent decades to create long-term plans to deal with the country’s escalating debt. Preliminary talk of any meaningful reform can make that politician the target of misleading attack ads that can jeopardize re-election hopes.  


RELATED: The U.S. Treasury Department highlights the growth of the national debt over the last 100 years. See those illustrations here.  


Hoenig also warned that if the Fed is forced to keep intervening by printing money, there could be serious outcomes. It could be good for farmland values in the short term but disastrous in the long term because it could bring another financial crisis.


Both former presidents agree that the Federal Reserve’s role has changed over time and they are worried about how much Congress will rely on it to help during financially difficult times. George said, “You don’t want the people who spend the money to be directing the people to print the money. You need those insulation walls.” 


The two also discussed the need for the federal government to cost less and for Congress to come up with a plan to accomplish that. 


RELATED: The Peter Peterson Foundation is a nonpartisan organization working to bring awareness to our country’s debt problem and offer solutions to our lawmakers. Here is an article the group wrote to better understand why debt matters. 


Hoenig said, “The difficulty is where do you cut? Here’s why: Ten years ago, we might have been able to do it without going to all the entitlements. But now they will have to go to the entitlement programs for cuts.” 


And because this is an election year, he thinks Congress will delay addressing the problem until at least 2025. Hoenig ended the discussion with this: “We are the greatest nation on earth. My issue is that I want to stay that way for my grandchildren. That means bringing back some discipline to the government.” 


NOTE: The Land Report Editor Eric O’Keefe and former Federal Reserve Bank of Kansas City presidents Esther George and Tom Koenig were all featured speakers during the 2024 Land Investment Expo in Des Moines, Iowa. Get discounted tickets to the 2025 Land Investment Expo here. 


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