An Urban's Rural View

If a single year could be said to have changed the course of history forever, was it 1959? 1968? 1969? 1994? Or maybe 1066? There are books, articles or college courses supporting each as "the year that changed everything." There's also a vote for 1400 as "the year that changed the world" and for July 1914 as "the month that changed the world."

No doubt many of these works are interesting and insightful. Their premise, though, merits skepticism.

Historical chains of causation are long and complex. They're laid out like a tree, branches stemming from branches stemming from branches. An important event channels history down a major branch but more branches lie ahead; many outcomes remain possible. There are many turning points, not just one.

Market analysts, like historians, find turning points fascinating. Just now they're debating which month next year the Federal Reserve will likely reverse course and start raising interest rates. Many think it will happen in June.

Whenever it occurs, it will be a turning point -- the Fed's first interest rate hike since 2007 and a signal that the aftershocks of the 2008 financial crisis are finally behind us. But it won't be the month that changed the world.

Reason one: The Federal Reserve's move will be but one link, and not necessarily the most important, in a long and complex chain of causation. The Fed has already taken a step towards a tighter monetary policy with its October 29 announcement that it will stop making extraordinary bond purchases. Markets will move rates higher even before the Fed announces an increase; they always do. The dollar began rising in anticipation last summer.

Reason two: When the Fed does raise rates, it won't be in a hurry to return them to normal levels. It has said as much in its recent policy statements (http://tiny.cc/…). One of the market analysts betting on a June 2015 rate hike -- John Silvia of Wells Fargo -- predicts a federal funds rate at the end of next year of 1.3% (http://tiny.cc/…). That would be more than a percentage point higher than the current range of zero to 0.25%, but still very low by historical standards.

Reason three: Rate increases could stall out or even reverse if the post-2015 economy falters. The economy is growing now but in a squirmy, indecisive, unsatisfying way. That could be as good as it gets for a while. If a pollster were to ask economists whether, in two or three years, a sustained economic boom or another recession was more likely, the recession would get many votes.

For farmers who are big borrowers, locking in interest rates as much as possible still makes sense. Borrowing costs will rarely be lower than they are today. But neither for farmers nor anyone else will June 2015 be the month that changed everything.

Urban Lehner

urbanity@hotmail.com

(ES)

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