President and CEO of Federal Reserve Bank of Chicago acknowledges that interest rate hikes have adversely affected ag but relief depends on controlling overall inflation. 

Farmers in Iowa and around the Midwest won’t see relief on high interest rates until the Federal Reserve Bank is convinced that overall inflation is under control, Austan Goolsbee, the president and CEO of the Federal Reserve Bank of Chicago, said last week at the Iowa Farm Bureau 2024 Economic Summit in Ankeny.

Agriculture, Goolsbee said, is a sector of the U.S. economy that has been most adversely affected by the Fed’s move to raise interest rates to tame inflation. 

Those increases, coupled with rising input costs and depressed commodity prices, “are certainly putting the squeeze on farmers,” he said.

However, Goolsbee cautioned that the Fed surveys the entire economy as it works to reach its stated target of a 2% inflation rate. 

“The goal is 2% and that’s not changing, so we have to finish the job before we move on to something else,” he said during a fireside chat led by IFBF President Brent Johnson. 

The recently released May in­flation rate showed that consumer prices rose 3.3% from a year earlier, down from 3.4% in April. It was a welcome signal on inflation, Goolsbee told the approximately 250 farmers and others attending the IFBF economic conference. 

But Fed policymakers will need to see a consistent trend on inflation data before considering a move to lower interest rates in 2024, he said.

Many economists, he noted, were more optimistic about a lower inflation trend in late 2023, only to see it jump back up in early 2024, Goolsbee said. 

“One month is just one month, and we’ve got to have more months than that before we are feeling better about getting to that target rate of 2%,” he said.

Economic uncertainty

Johnson, a Calhoun County farmer, noted that the current economic problems for farmers are spilling over into lost jobs in the agricultural supply industry. 

The ag economy was cited in the recent layoffs at John Deere around Iowa and at Bridgestone-Firestone agriculture tire plant in Des Moines, as well as the Tyson pork plant closing in Perry. 

“If you start looking at these events at the manufacturing sectors that support agriculture, it really feels fairly tenuous on the farm right now,” Johnson said.

The Fed, Goolsbee maintained, is keeping a very close eye on the downturn in the farm economy. 

Recent surveys of agriculture bankers in the Chicago Fed District, which covers Iowa and parts of other Midwest farm states, are showing an increase in stress among agriculture borrowers, he said. 

“Agriculture and manufacturing are really at the tip of the sphere when the Fed raises interest rates. We watch those sectors very closely,” he said.

Along with high interest rates, farmers face challenges from the strong dollar and the unsettled geopolitical climate, which both could adversely affect U.S. ag exports, Goolsbee said. 

“Trade is, of course, a huge make-or-break issue for the health of the agriculture economy,” he said.

Pictured above:  Approximately 250 participants attended the 2024 Iowa Farm Bureau Economic Summit held last week in Ankeny. The event featured 13 renowned experts who shared insights to help farmers overcome economic pressures and discover opportunities. PHOTO / CONRAD SCHMIDT

What about exports?

With both political parties discussing tariffs against China and other countries, there is a danger that U.S. farm exports could get caught in the crossfire, Goolsbee said. 

“I have always said tariffs are terrible and exports are going to be in danger because other countries will respond in that same way.”

While Midwest agriculture faces a multitude of challenges, it continues to have many advantages in the global market, Goolsbee said. 

The biggest, he said, is the tremendous productivity gains that farmers in Iowa and around the country have achieved over the decades.

“It’s remarkable to me that Midwest agriculture has proved so remarkably resilient,” Goolsbee said. “And I don’t mean like just over six months or something. I mean over decades and decades.”

He noted that U.S. farm outputs have tripled since just after World War II but inputs have declined.

The key to U.S. agriculture’s long-term success is being able to continue building on those accomplishments. 

“I really think that is the magic sauce, and we’ve got to keep a focus on that,” Goolsbee said.