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Financial Outlook - Rate wars continue

Nobody agrees on monetary policy

If you think folks on your farm can’t agree about money, take heart. Neither can the Federal Reserve.

The central bank’s vote to raise interest rates by another one-quarter of 1% last week included three dissents. And participants in the latest meeting on monetary policy were even more divided about the direction of rates moving forward.

Even the market can’t agree on what the latest moves mean. Some investors believed the decision was a victory for inflation-fighting hawks. Others believed comments by Chairman Jerome Powell at his press conference struck a more dovish tone, holding the door open for further cuts, perhaps as soon as the next meeting at the end of October.

Two-thirds of the betting on Federal Funds futures sees that probable, with odds rising to 80% by the banks last meeting of 2019 in December. Members of the Fed’s board of governors and president’s of region banks appear far less certain, according to their economic projections. The “dots” as they’re called showed five backing a return to higher rates, five keeping rates steady, with a midpoint for the fed funds target at 1.875%, and seven seeing another reduction of one-quarter of 1%.

Forecasts for the end of 2020 were even more conflicted. Seven put rates higher, eight lower, and only two holding steady. For his part, President Trump wants sharply lower, perhaps negative rates, to stimulate investment.

Lower rates would help offset the risk of lower growth from trade wars and a sputtering global economy. The Organization for Economic Cooperation and Development last week cut its forecast for growth in the U.S. and other major countries. Only Argentina would remain in recession, but Chinese GDP growth would slip to its lowest level since the boom there began in the 1980s. And only a few emerging markets in Asia would better the U.S. figure of 2%, with Japan, the UK and EU all 1% or less.

Indeed, there’s no sign of recession in the U.S., despite warnings from the Treasury curve. Yields on short-term Treasuries were below the 10-year rate all summer. That red flag preceded every previous recession since 1955, though the timing of the signal is imprecise. Yet yields on the 10-Year Note look cheap by fundamental measures, while the dollar looks overvalued. Both were affected by safe haven buying, which continues to keep gold above $1,500 an ounce.

Nonetheless, worries are evident again as the third quarter of the year prepares to go into the record books. After taking aim at record highs last week, the S&P 500 Index dropped precipitously on negative comments about China from President Trump at the United Nations. Stocks seem overvalued, though not exceptionally so. Corporate earnings for the third quarter begin in October, sometimes a perilous month on Wall Street.

So don’t expect the disagreement about money to end anytime soon. For now the best may be to agree to disagree.


Senior Editor Bryce Knorr joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

For more corn, wheat and soy news, commodity marketing recommendations and daily commodity charts, subscribe to Farm Futures' free e-newsletter, Farm Futures Daily, and keep up during the day with Farm Futures on Twitter.

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