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KayDee Gilkey Federal Reserve Makes Expected Interest Rate Increase
by KayDee Gilkey, click here for bio

Program: Farm and Ranch Report
Date: March 17, 2017

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The U.S. Federal Reserve has again elected to move forward with interest rate increases following a meeting Wednesday. Widely expected, the decision raises the Fed’s benchmark rate to a range between 0.75 percent and one percent. The Fed attributed the change to a continued “moderate pace” of the U.S. economy.

For agriculture, USDA Economist Rob Johansson has previously said interest rate increases mean more of the same for the farm economy, which is slumping amid low commodity prices. He says the increase may mean a stronger dollar

Johansson: “And that has the affect of making it more difficult for our producers to sell our products overseas. We become a little less competitive on the global scene.”

Also with a higher interest rate

Johansson: “Land and capital equipment would probably gone down in value a little bit. As the interest rates go up, it becomes a little more difficult to buy those and therefore the demand for those assets to fall so we would expect the price for agricultural land to fall as interest rates go up."

The increase will likely impact loans for big-ticket items, such as farm equipment or land purchases, as well as the prime rate, which is the base borrowing rate banks extend to their customers. The rate hike will increase the upward pressure on interest rates that consumers pay overall, but the immediate effect is likely to be modest.

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