An Urban's Rural View

Investors have shaken their fears that the Federal Reserve is preparing to boost interest rates. As Jon Hilsenrath of The Wall Street Journal points out (http://tiny.cc/…), interest rate futures are flashing expectations that the overnight borrowing rate for banks will be below 0.2% in December 2014. Two months ago the expected December 2014 rate was near 0.5% and rising.

Why the change? Hilsenrath offers a detailed explanation but the short answer is that investors seem to have finally accepted what Federal Reserve officials have been saying all along -- that a decision to cut back on the Fed's $85 billion in monthly bond purchases wouldn't necessarily trigger a decision to boost interest rates.

Investors expect the Fed to start trimming its bond buying sometime in the next few months. And recently they've come to take Fed officials at their word when they say they won't start raising interest rates until 2015 or 2016.

What changed their minds? Partly it's that a monetary dove, Janet Yellen, is slated to take Ben Bernanke's place as the Fed's chair. Partly it's talk by Fed officials about lowering the trigger point for an interest-rate increase. It will take longer for the economy to lower the unemployment rate to 5.5% than to 6.5%, the Fed's current trigger point for an interest-rate hike.

Markets are also hearing reassurances that the Fed's bond buying won't end altogether. "Our balance sheet has become bloated and at some point, we will have to taper back on the pace of purchases" Dallas Federal Reserve president Richard Fisher said recently, "but that doesn't mean we'll stop. We'll have less accommodation as opposed to the current $85 billion a month."

Federal Reserve policy matters to farmers and ranchers as much as it does to markets. It affects borrowing costs, land prices and commodity prices. That's why DTN and the Progressive Farmer are pleased to have Richard Fisher as the keynote speaker at our Ag Summit in Chicago December 9 to 11.

It's hard to think of someone more qualified to give an interesting, thoughtful explanation of Fed policy. He has both the insight of a Fed insider and the perspective of a dissenter from some Fed policies. And as his recent speeches on "quantitative easing," too-big-to-fail banks, Congressional dereliction of duty and other topics indicate, he isn't afraid to speak his mind.

To see the full summit agenda and sign up, go to http://tiny.cc/…. I hope you can make it.

Urban Lehner can be reached at urbanity@hotmail.com

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