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Changing Interest Rates

Date: 
Author: 
Dr. David Kohl
Educational Opportunities: 
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Grain, Dairy, Swine, Beef, Timber, Young, Beginning Farmers, Women in Ag
Home > Education & Events > July 2018 > Changing Interest Rates
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Hi, I'm Dr. Dave Kohl, Professor Emeritus and academic hall of famer at Virginia Tech, Blacksburg, Virginia. The subject matter today is: Where are interest rates going? The most common question I'm getting asked on the road is, how far and how fast are interest rates going to increase? I think there's three or four variables that you really need to keep your eye on concerning interest rates. Number one, watch unemployment. Of course the unemployment rate is in the high threes and, of course, the current unemployment rate came out at 4%. If that stays in that range, we will see an increase in interest rates by the Federal Reserve. I think the second component we need to keep a close eye on is consumer sentiment. The University of Michigan has a study that comes out every month, if that number remains above 90, and in the past two years, of course it has been above 90, that's another factor they'll consider in increasing interest rates.

Of course, the Federal Reserve will keep a close eye on inflation. One thing we have seen is core inflation without food and energy, and headline inflation, including food and energy, starting to move towards the 2.5%, 3% range. If this continues, the Fed will continue to raise interest rates. Finally, watch the growth of the economy. If you see the growth of the economy later this summer fall in the 3% range, that's another signal to increase interest rates. Bottom line is, for agriculture producers that have considerable money on variable interest rates, you're probably going to have to peg in two or three interest rate increases between now and next May. We'll see you the next time where we'll discuss some more about economics.
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