“Go big or go home.” That is how the saying goes. The Federal Open Market Committee (FOMC) decided to go big and then go home. Now we see what short-term impact it has on the agricultural industry. And we wait to see whether one or two more rate cuts will follow before 2024 comes to an end.
RELATED: Market Talk discussed how the interest rate cut could affect various agricultural sectors. Watch that here.
The FOMC voted Wednesday to lower the federal funds rate by half of a percent rather than a quarter of a percent like many Fed-watchers had speculated. The move ended a two-decade high for rates and represented the first rate reduction since 2020 when the global pandemic walloped many facets of the U.S. economy.
RELATED: The Street looked at the 11 times that the FOMC raised interest rates during 2022 and 2023 and laid out some of the factors that contributed to those decisions. Read that here.
“The central bank’s action lowered its key rate to roughly 4.8 percent, down from a two-decade high of 5.3 percent, where it had stood for 14 months as it struggled to curb the worst inflation streak in four decades,” an Associated Press story on the FOMC’s decision stated.
“Inflation has tumbled from a peak of 9.1 percent in mid-2022 to a three-year low of 2.5 percent in August, not far above the Fed’s 2 percent target.”
The Fed had wanted to cool the economy but keep the country out of recession. It seems to have accomplished that. However, the reluctance to cut rates sooner came with a cost to borrowers, who had to deal with the inflated costs.
“At long last, it seems that the Federal Reserve has smelt the coffee that it was keeping interest rates too high for too long for the economy’s good,” Desmond Lachman, American Enterprise Institute Senior Fellow said.
Lachman is among those who felt like the Fed should have acted sooner to bring down rates. He questioned whether the “welcome and bold decision“ came soon enough, and if it “will be sufficient to stave off a recession and a regional bank crisis next year.”
The job market has been settling down for months. Agricultural-related manufacturers have announced thousands of job cuts.
“Job openings have been declining rapidly, employment gains have been moderating meaningfully, and the unemployment rate has increased over the past four months by 0.8 percent to its current level of 4.2 percent,” Lachman wrote.
“Meanwhile, manufacturing output has been waning, and according to many major companies, consumers are showing signs of fatigue. It seems that the consumers have now run through their Covid check savings.”
However, Federal Reserve Board Chair Jerome Powell said, “Our economy is strong overall and has made significant progress. The labor market has cooled. Inflation has eased substantially.”
Powell acknowledged the pain that the extended interest rate escalation had caused. “We are acutely aware that high inflation has a significant hardship. It erodes purchasing power,” he said.
The move to start bringing down rates was not too late, he said. Powell pushed back on the question that the Fed had fallen behind in taking action.
“We do not think that we are behind. We think this is timely,” Powell explained. “You can take this as a sign of our commitment not to get behind. It is a strong move.”
