If you are in your 20s, you might be thinking, “WTH is happening with interest rates?!” If you are over 50, you might be saying, “Let me tell you about interest rates! Back in my day…”
The current, elevated rates for borrowing can limit those looking to buy or expand farmland or invest in new equipment. And, no doubt, rates are significantly higher than they were before COVID-19 wrecked the economy in 2020. In August 2020, rates hit their all-time low of 0.50%.
If there is any consolation for the financial pain of higher rates now, it is that they were much higher a few decades ago. It has been 16 years since the federal funds rate approached its current level of 5.33%. The rate hit 5.3% in May 2007. That was right before rates dramatically fell as the United States plunged into the Great Recession following the subprime mortgage and banking crisis. For perspective: the average rate over the past 58 years is 6.1%.
In 2000, rates reached 6.86% as The Federal Reserve tried to slow down a hot economy, which threatened to spike inflation. It had been nearly a decade since rates reached that level.
But those rates were nothing like what happened two decades before that. The beginning of the most recent Farm Crisis – which was caused by a variety of factors including soaring inflation, the Fed dramatically raising rates to deal with that inflation, plus President Jimmy Carter’s grain embargo -- saw record-high rates that hit 19.99% in 1981. (Again, remember that the average of the past six decades in the U.S. is not even one-third as high).
Here is a deep dive into the main causes of the 1980s Farm Crisis by the co-founders of Agricultural Economic Insights.
The chart below offers a visual guide to follow the ups and downs of rates. And since current rates aren’t expected to fall fast as the Fed tries to balance the concept of shrinking inflation without slowing the economy too much, it may offer a little historical solace into how much higher rates could be.
Comentários