Higher Interest Rates Are Coming
The Federal Reserve has changed its monetary policy and, as a result. interest rates that have been at zero will begin to rise. American Ag Bankers Senior Economist Keith Leggett says 2015 will see rates increase, “What we are looking at is that the Fed will start to allow interest rates to move upward toward more normal levels beginning in June of 2015.” He sees a slow and steady rise and anticipates an interest rate of 2.75% on the short end of the yield curve by the end of 2016.
Speaking at the Ag Bankers meeting in Omaha, NE, Leggett said rates on long term assets like farmland will not increase as fast as other interest rates, “Interest rates on money markets are going to go up, while rates on farmland mortgages are going to remain flat or only increase slightly.”
The Fed is planning on a slow but steady rise in rates, but Leggett worries economic forces may boost rates much faster than anticipated. He said, over the past 8 years, the Fed’s portfolio of assets has “ballooned” to around $4.4 trillion. If the Fed decides to sell these assets, it could lead to a sharp spike in interest rates. “This could occur in 2017,” he added.