Yes, we have been down this road before. Anyone who has borrowed money, had a variable interest rate, looked at buying farmland or expanding operations, or thought about selling their land but held off because of potential buyers’ financing fears…anyone in any of those scenarios knows that the wait…has…been…long…for the Federal Reserve to lower interest rates.
But signs increasingly point to September for the first reduction.
Investors and borrowers alike had hoped for rate cuts early in 2024. However, inflation persisted above the Fed’s preferred target rate of 2 percent. For nearly a year now, the Fed has held rates steady. For seven consecutive meetings the board’s decision-making body opted not to change rates. And that meant rates remained at their highest level in 23 years.
That has also slowed farmland sales. Some sellers have kept their land off the market as they wait for better borrowing conditions for potential buyers. Potential buyers have hesitated, too, unless they have ample cash to finance a deal.
Here is an example: Peoples Company provided statistics for Iowa farmland sales from the second quarter.
Second quarter 2024 sales are similar to what they were for 2023’s second quarter. But they are about half of what they were compared to the second quarter of 2022.
Farmand sales haven’t stopped. But they have slowed as financial pressures have bogged down movement.
RELATED: See the full 2024 second quarter report on Iowa agricultural auctions from Peoples Company here.
So, optimistic talk that the Fed may soon act to lower borrowing costs perks up ears across cornfields, pastures, ranches, barns, pens, confinements, and just about everywhere else.
A Wall Street Journal piece makes the argument that the Federal Reserve should not wait until September to lower rates, though. It credits policymakers for the elevated borrowing rates that brought down inflation and cooled the labor market. The Fed’s actions avoided a recession, at least so far, despite dire predictions from some politicians.
Inflation fell from 4.3 percent to 2.6 percent now, the largest decline in 40 years, the article pointed out. Meanwhile, the unemployment rate has ticked up to 4.1 percent from 3.6 percent.
The article stated, “The Fed seems reluctant to take the win. This week Fed Chair Jerome Powell refused to say when, or if, the Fed would cut interest rates, New York Fed President John Williams said he needed more data, and Fed governor Chris Waller merely acknowledged a cut was ‘getting closer.’ Markets expect a cut in September.”
Markets feel especially hopeful about a September rate reduction. CME FedWatch Tool, which measures market sentiment, put the odds that a cut happens in September at more than 95 percent. That is some serious optimism.
