Your Compeer Office
Blue Earth, MN

1700 Gian Drive, PO Bbox 220
Blue Earth, MN 65013
[email protected]

Compeer Client Services

What are Rates Doing?

Going up, no need to read further! All kidding aside, the Federal Reserve increased interest rates once again when they met in March, making it the ninth consecutive increase in the past year. It has been curious to watch as the Fed signals movements in one direction while, at times, the broader markets seem to shrug off the direction or have a different sense on where things are going. In conversations with Compeer’s clients and partners, rising interest rates come up 98% of the time. For some businesses, additional interest expense can have a serious impact on their profit and loss statements. Given the speed of the increases they’ve experienced, some may have hedged against the rise while others may have been more cautious.

The Why

Chair of the Federal Reserve Jerome Powell has made it no secret since rates began rising in March 2022 that the target inflation rate was 2% or less. Economic report after report has seemed to defy the Fed’s best efforts at maximum effectiveness. While there are some signs of a turning ship, the impact has been slowly received. In researching where the Fed looks when adjusting rates, here’s some of the impacts that have occurred since hikes began last year:

  • Personal Consumption Expenditures are up 5.4% year over year. This number is up from 5.3% in January 2022. Even after stripping out food and fuel, it is up 4.7% over the most recent 12 months.
  • Consumer Spending from the January report has seen a 1.8% increase.
  • The U.S. unemployment rate saw a slight increase in February to 3.6%. Average hourly earnings slowed to .2% from .3% in January.

While these are some of the main factors, there are many other factors that drive the Federal Reserve’s decision making. What looked like a peak rate of 5.25%, could be 6% or higher by the end of the year.

The areas that inflation is showing up today has shifted since COVID-19. During the lockdown, there was a runup in goods. As people have returned to more of a pre-pandemic normal, there has been a shift in focus to services. Cars, groceries and housing costs are still elevated, but consider what is happening on the services side. United States Services Inflation accounts for 57% of the consumer price index. We can probably rationalize the cost of a dozen eggs, used car or new home going down; however, on the service side, is there a reason why the cost of things like hotel rooms, car insurance and vehicle repairs have not decreased? They may go down over time, but it won’t happen overnight. Expectations for reduced costs, higher unemployment and lower wage gains need to be paired down to reality. Housing prices have decreased while supply is still constrained. As of January 2023:

  • Housing sales dropped 0.7% from December and were down 36.9% from a year ago, marking 12 consecutive months of declining sales.
  • Inventory still hasn’t recovered from 2008, but there is a 2.9 month inventory supply, which is up from 1.6 months last year.
  • The median existing home price was up 1.3% in January to $359,000 compared to a year ago, but down roughly 13% of the record high of $413,800 in June 2022.
  • The distribution of outstanding 30-year mortgage rates estimate 70% of all carry a rate of 4% or below.

Lately, job openings have been of interest as well. Here are some thought-provoking statistics:

  • The Job Openings and Labor Turnover Survey for the month of January was at 10.824 million openings, which is down 410,000 from December. While a decrease, it’s still a historically high number. That number equates to 1.9 job openings per every available worker. In other words, 5.13 million people are needed to fill open positions. 

As stated earlier, the Federal Reserve is having an impact on turning the ship. Mortgage rates are up, some costs are dropping and consumers may be taking a second look at purchases or spending less on goods and services. It’s a big boat that will take time to move.

Looking Forward

We have plenty of opportunities to gauge the Federal Open Market Committee’s (FOMC) actions in 2023 with meetings scheduled to occur through the end of the year.

As the ship turns, you don’t need to follow every report, survey and news article. Instead, realize that rates will move up and down. Historically, we’re near longer term averages and have a plan if the additional interest rate exposure has an adverse impact on your business. Like all things, we’re in a cyclical environment. Hopefully you’re reaping benefits of that strong consumer economy as we begin to enter a more normalized phase in rates, unemployment and spending.


Check out various articles and resources regarding the Agriculture industry provided by Compeer.



Senior Food and Agribusiness Lending Specialist
facebook twitter linkedin email copy clipboard phone fax pdf print checkmark