How high will interest rates go in 2023? This was among the many questions posed at the Purdue Top Farmer Conference last week in West Lafayette. Jason Henderson, Purdue’s Senior Associate Dean of the College of Agriculture and Ag Econ professor, gave his opinion.
“If you look at the Federal Reserve policy, and they’re doing a very good job, in my opinion, of communicating where they think the path is going forward, I think in 2023, you’ll get more of an increase in interest rates going in there. Not this huge shock or anything substantial, but just more modest increases. So, you’ll probably get a half percent to a full percent in 2023 higher than what they are today. But it all depends on the economy and where it moves going forward because they’re really focusing on being data dependent and responding to economic conditions.”
Prior to coming to Purdue, Henderson worked at the Federal Reserve Bank of Kansas City.
He says agriculture is a debt-financed industry, so the modest increase in interest rates that he projects will result, obviously, in higher debt payments on farmers operating loans. Henderson shares the good news before the bad news.
“Right now, they have a lot of cash. So, they’re not using as much debt as they have in the past. So, that’s a good thing. The other part of it, though, is that a higher interest rates place downward pressure on land values, and so you can see some flattening of land values or maybe some softening depending on how high interest rates go and some other factors that happen.”
Another question that Henderson addressed: are we headed into a recession?
“I don’t think, at this point in time, we’re heading into a recession. We’ll have some slower growth. Consumer fundamentals are strong: they’re spending, wages are going up. So, you’ll have that consumer spending and that’s about 60 to 70% of the economy. You have businesses that are making investments, not in business structures, you’ll have it in terms of other equipment, especially intellectual property type of equipment. And the government is spending money, mainly at the federal government side. So, all these factors are, I think, positive.”
Hear the full HAT interview below with Henderson where he discusses more on his economic outlook as well as his transition to Iowa State University where he recently accepted the position of Vice President of Extension and Outreach.
