Ports, Policy and Prices: Ag and the Economy in June 2025

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The mid-May negotiation to reduce reciprocal tariff rates with China from an additional 145% to 30% fueled bullish sentiment in the market, offering a glimmer of optimism amid challenging economic conditions. Despite reduced trade at ports and declining consumer sentiment in April and early May, macroeconomic indicators showed surprising resilience. As we transition from May into June, there were some positive rebounds, including resumed port traffic. But uncertainties still loom, necessitating a closer look at the economic nuances of recent data.

Steady Macroeconomic Indicators

May's economic reports reveal stability in the two major macroeconomic data points central to the Federal Reserve's dual mandate: maintaining maximum employment via stable unemployment rates and keeping prices steady via low inflation. The U.S. non-farm unemployment rate held steady at 4.2% in May, marking the third consecutive month at this level, which is nicely within the range of 4.0-4.5% most labor economists consider healthy. However, the rise in continuing jobless claims suggests potential underlying challenges; while the number of unemployed individuals remains stable, finding new employment may become increasingly difficult for those already without jobs.

The latest inflation figures offer additional, mostly positive news. From March to April, the Personal Consumption Expenditures (PCE) price index rose by a modest 0.1%, with the core PCE, which excludes more unpredictable food and energy prices, mirroring this increase. Year-over-year metrics are similarly favorable, with the PCE price index rising only 2.1% in April and the core PCE increasing by just 2.5%. These numbers indicate progress towards the Fed's 2% inflation target, raising hopes that this trend might persist into June.

Challenges and Headwinds

Despite these positive indicators, Gross Domestic Product (GDP) remains a point of concern. The Bureau of Economic Analysis's second estimate adjusted GDP growth slightly upward from -0.3% to -0.2%, which is good. But this revised -0.2% growth rate still indicates lackluster economic performance for Q1 2025. The revision also highlighted weaker-than-anticipated but still strong consumer spending. What was not revised is the conclusion that the surge in imports in February and March ahead of April’s tariffs was the key contributor to the calculation of negative growth.

Given these mixed signals – soft GDP, near-target inflation and stable employment that is showing some small cracks of weakness – the Federal Reserve faces a complex decision regarding the Fed funds rates at their June 17-18 meeting. However, the signs continue to point towards a “wait and see” paused approach. For example, at a recent speaking engagement, Atlanta Fed President Bostic advised caution to monetary policy changes, opting to wait for the impacts of new tariffs on inflation and the job market before considering any rate adjustments. He indicated this deliberation could span three to six months. Fed Chair Powell has similarly signaled “wait and see.”

Bond Market Vulnerabilities

Weakness in the bond market further complicates the economic landscape. In May, Moody's downgraded the U.S. sovereign credit rating from Aaa to Aa1, citing concerns over rising government debt and interest costs and aligning with earlier adjustments by Fitch and Standard & Poor’s. Although the downgrade was anticipated, it prompted sufficient market activity to temporarily elevate 30-year consumer home mortgage rates above 7% in the immediate aftermath of the downgrade. At the end of May, bond yields rose again due to concerns over future deficit growth tied to potential tax cuts. The U.S. House of Representatives passed a Reconciliation Bill, but the Senate's upcoming negotiations will be crucial in determining its fate, with a target vote set for July 4. In many ways, bond market dynamics have a more important and direct relationship with consumer interest rates than Fed rates (the prime rate being an exception that tracks directly with the Fed’s target rates), making bonds an important financial factor.

The United States Department of Agriculture projects a $49.5 billion agricultural trade deficit for fiscal year 2025 – nearly doubling the gap from two years prior. This projection raises concerns about long-term ag trade implications. As economic uncertainty continues, I’ll be keeping an eye on the markets, upcoming economic reports and meetings, including the Fed's June Federal Open Market Committee (FOMC) meeting and the June WASDE release. Plus July 9 brings the end of the global reciprocal tariff pause – China’s pause ends separately on August 9.

For monthly updates on ag commodities, inflation and economic trends and more, subscribe to Compeer’s Economic Minute e-newsletter and tune in regularly to our Agri-Mindset webinars. Our next Agri-Mindset webinar, Securing Your Bottom Line: Smart Financial Practices for 2025 will feature Compeer Financial’s Paul Dietmann, senior lending specialist, and focus on analyzing capital investments. We’ll attempt to cut through the uncertainty and focus on financial factors you can control. Whether you’re planning to upgrade equipment, expand your herd or invest in infrastructure, this webinar will help you understand how to evaluate your options in the greater macroeconomic context and protect your microeconomic bottom line.

This article was authored prior to the June 12 WASDE and before the Fed’s June 17-18 FOMC meeting.

The information provided is accurate to the best of the author’s knowledge at time of publishing. It is presented “as is” with no guarantee of completeness, accuracy or timeliness, and without warranty. The information is educational in nature and not investment, legal, accounting, tax or other advice of any kind.