Chicago Federal Reserve Bank President and CEO Austan Goolsbee was the keynote speaker at the Iowa Farm Bureau Federation (IFBF) 2024 Economic Summit on June 14. He sat with Dirck Steimel before his conversation with IFBF President Brent Johnson to talk about the direction of interest rates and other key economic factors facing farmers. Here are excerpts of that conversation:

 Q. You are just out of the Federal Reserve’s Open Committee meeting in Washington. Can you tell me about the sentiment of the committee for the overall U. S. economy and how that could affect interest rates?

First off, they forbid me from ever speaking on behalf of anyone else. But my sentiment is that we (the committee) found a lot of relief in the number that came out showing inflation coming back down. If we get more months like this month, I think it would make sense for rates to come down to something like normal. But it’s just one month, so we’ll have to see.

It’s good that we've been able to make as much progress as we have in the last year and a half on getting the inflation rate down, and without there being a major recession.  For me, the strongest aspect of the economy has been that the job market has remained strong, while inflation has been the weakest part.

Q: If interest rates do ease off some in 2024, will that be a big help to farmers? 

I think it will be some help. But like in other parts of the economy, we’ll have to see because we’ve had two to four years that look really unusual.

Q. Do you think the interest rates on farmers’ short-term operating loans will be sensitive to any reductions in interest rates this year? 

Historically these short-term loans have been relatively sensitive. So, if rates start to come down, I would guess we could look to past rate cutting cycles to see how rapidly the farm economy might respond. But it might have to be modified a little. As we have seen in some cases like with housing, we're discovering that sometimes the normal rules don't apply after this unusual period.

Q. What economic factors need to change to help improve the farm economy? 

I'd say the thing that feels most relevant, in the short run, is getting inflation down. That will probably give some relief on the input cost side. So hopefully we’ll get some improvement in that soon.

Q. How about farmland prices? Do you see more pressure on land prices?

Farmland prices were rising very robustly and that has definitely slowed.  The dynamic in Iowa is a little different, a little more positive than some other parts of the country, because of the productivity here.

Q. How are farm banks and other lenders doing through this downturn?  

We've just gone through a year that was tough for community banks, smaller banks, regional banks. So, the farm banking sector has been under a lot of stress. I don't say that it's done badly, but it's just been under stress. But not to a level that we say: “that's what a recession looks like.”

Q. Switching gears, what do you see as the strengths and weaknesses of agriculture in Iowa and other states in the Chicago Fed district?

The Midwest farm economy has proved remarkably resilient by adapting and integrating technologies to increase and sustain productivity growth.  Whether it's weather shocks, interest rate increases, input costs, all of those things, that adaptability shows through.  I would highlight, when I was here in Iowa last summer, folks were talking about the drought, and saying the corn crop may be a total bust. But it ended up being one of the all-time record crops. Farmers are resilient.

A weakness might be a lack of labor. In many parts of the country, people are saying there isn’t a labor shortage anymore.  But there still is a labor shortage in a lot of parts of Iowa and that could hurt agriculture over time.

Declining population in some rural areas in the Midwest has also created challenges for local economies.

Increased global supply and demand can also create an area of vulnerability for agriculture in the geopolitical environment.

Q. Both Democrats and Republicans now seem favorable to tariffs.  Is that a danger sign for agriculture? 

I try to stay out of anything that's not in the Fed’s lane, but I was an economics professor. Trade conflicts and tensions feels like another area of vulnerability for everybody, but especially in the Midwest. If we get into a global trade war where other countries are trying to block out our agricultural products, one of the hardest hit sectors is likely going to be agriculture.