This cut lowers the Fed鈥檚 benchmark interest rate to a range of 4.0-4.25%. Economists are largely expecting at least one, if not two, more cuts yet this year.

President Donald Trump has been pushing for the central bank to reduce borrowing costs in order to juice economic growth, but the Fed said its decision was based on the need to support a weakening job market.

“Today was good news as operating rates for producers and dealers鈥� floorplan rates should decrease,鈥� says Greg Roberg, AgDirect vice president of sales.

Roberg says while two more cuts would be nice to see, he鈥檚 leaning toward one more cut being more likely, unless inflation falls further. 鈥淚 believe the Federal Reserve will continue to manage toward a soft landing with interest rates and getting inflation to 2% is their focus,鈥� he says.

According to a Farm 婷婷激情五月天 Insider text poll, 43.3% of respondents said they could see a 1-2% bump in their year-end sales if they saw a quarter-point reduction from the Fed this week.

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Diane Swonk, chief economist and managing director with KPMG Economics, said the statement following the decision was more aggressive than many market participants hoped. There were only minor edits to the language regarding progress on inflation and the prospects for rate cuts.

However, she noted the line in the statement regarding risks was tweaked and made more revealing about where the Fed is headed. Instead of saying that the Fed remains 鈥渉ighly attentive to inflation risks,鈥� it now says, 鈥渋s attentive to the risks to both sides of its dual mandate.鈥�

That shift reflects the Fed鈥檚 concern that it could overtighten and miss hitting its mark on a soft landing. Chairman Jay Powell had laid out his concerns earlier in the month in testimony to Congress. When pushed on the Fed鈥檚 dual mandate 鈥� to foster price stability and full employment 鈥� and the risk that it could inadvertently overtighten, Powell responded, 鈥淚t鈥檚 the number one risk鈥� that keeps him up at night.

Chairman Powell went further in his statement as he opened the press conference following the meeting. He said that if inflation fell faster or unemployment rose more than expected, the Fed would move.

The Fed is widely expected to cut rates in September. Powell was pushed on why the Fed did not cut today, given where the Fed is today. He emphasized that the Fed just needs more good evidence on inflation improving. The Fed does not want to find itself in the position that the European Central Bank now finds itself, which is a monetary policy purgatory. It cut before the Fed in June, only to be humbled by stickier service sector inflation thereafter. That has left it in an uncomfortable holding pattern, unable to commit to cutting again in September.

Powell also said that the Fed will be 鈥渄ata dependent, but not data point dependent鈥� in its decisions. This is important, as financial market participants tend to react to each individual data point instead of taking the data in its totality.

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This decline in claims comes as a positive reversal from the previous week鈥檚 unexpected rise, which was attributed to temporary shutdowns and Hurricane Beryl鈥檚 impact. The prior week’s claims were revised slightly upward to 250,000. The latest data suggests that last week’s disappointing payroll report may have been an anomaly caused by adverse weather conditions.

U.S. stocks rose following the announcement, and benchmark Treasury yields increased above 4%, with the U.S. dollar strengthening against other currencies. Marc Chandler, chief market strategist at Bannockburn Global Forex, remarked, “The talk of an imminent recession seems wide of the mark.”

The improved jobless claims have also led investors to reduce their expectations of immediate Federal Reserve rate cuts, reflecting growing confidence in economic stability. Analysts remain hopeful that this trend will continue, reinforcing the outlook for gradual economic growth and stability in the labor market.

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Manufacturing activity is experiencing varied trends: a downturn in the upper Midwest, stability in Texas, and an upswing in the Northeast.In the Northeast, Queen Screw in Waltham, Massachusetts, is benefiting from increased orders, particularly in the medical and defense sectors.

General Manager Peter G. Babigian reports a 5-10% rise in orders, attributing this to a post-pandemic adjustment by customers. “During COVID, people ramped up and oversupplied,” Babigian said. “People have now depleted some of that inventory, so we鈥檙e picked up a little bit.”

Regional dynamics contribute to these differences. Jason Miller, a supply chain management professor at Michigan State University, notes, “The Northeast isn鈥檛 a general manufacturing powerhouse, but areas like Boston and New York have a strong pharmaceutical sector.”

Meanwhile, other regions, such as North Carolina and Michigan, face challenges in sectors like furniture due to a downturn in housing. Economist Betsey Stevenson from the University of Michigan emphasizes, “We often forget how big the United States is. We see really big differences in the economic situation across the country.”

The pandemic-driven shift in consumer spending from services to goods initially boosted manufacturers, but as spending returned to services, the impact varied widely by sector.

Despite regional successes, the industry faces overarching challenges, including labor shortages and regulatory uncertainty. Carolyn Lee, president of the Manufacturing Institute, highlights, “One of the biggest challenges is uncertainty in regulation and policy. All of that has a chilling effect.” With over half a million unfilled manufacturing jobs, the industry grapples with a structural skills gap, affecting manufacturers nationwide.

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For shortline farm equipment manufacturers, this uptick in production is promising despite higher borrowing costs still posing challenges. Manufacturing, making up 10.4% of the economy, has been relatively stagnant due to elevated interest rates impacting demand and capital investment.

There is cautious optimism that factory activity could improve as the Federal Reserve is expected to ease monetary policy in September amidst decreasing inflation. Notably, motor vehicle and parts production rose by 1.6% in June. However, durable goods manufacturing remained flat, with gains in motor vehicles, electrical equipment, and appliances offset by declines in fabricated metal products.

Nondurable manufacturing saw a 0.8% rise, while mining output increased by 0.3% after a decline in May. Overall, industrial production grew 1.6% year-on-year in June, with a 4.3% increase in the second quarter.

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鈥淟ending has softened alongside nearly two years of increases in farm loan interest rates that have put considerable upward pressure on financing costs,鈥� said the Kansas City Fed.

鈥淭he farm economy moderated in recent months as profit margins thinned alongside commodity prices and elevated expenses,鈥� said the Kansas City Fed in a summary of a quarterly survey of ag bankers nationwide. 鈥淐redit needs have increased for many borrowers alongside high input costs, but strong liquidity built up in recent years has allowed many producers to supplement additional loan advances.鈥�

The USDA estimates that net farm income, a broad measure of profitability, will total $141.3 billion this year, a plunge of 22 percent from the record $183 billion of 2022. Nonetheless, income this year would be still the second highest ever and $40 billion above its 10-year average. Receipts from crop and livestock sales would be down $23 billion, while expenses would be up $29 billion. The debt-to-asset ratio, an indicator of solvency, would decline slightly.

The average interest rate on all types of farm loans, after rising for nearly two years, was the highest since 2007, at 8.34 percent, said the Kansas City Fed. 鈥淐onsiderably higher financing costs have likely prompted borrowers with ample liquidity to limit debt usage, but any softening in farm finances could reduce cash reserves and put upward pressure on lending demand.鈥�

As a result of the decline in farm lending, the volume of operating loans exceeding $1 million was half of its year-ago volume and the volume of smaller-sized loans was down 15 percent, said the Ag Finance Update. The change favored smaller banks, which typically handle smaller loans. They saw a 25 percent increase in non-real estate lending, while large banks saw a decline. The average operating loan this summer was nearly $59,000.

鈥淭he average duration of new farm real estate loans has increased gradually over the past year and was more than five years longer than the average loan from 2010 to 2020,鈥� wrote Kansas City Fed economists Nate Kauffman and Ty Kreitman. Maturity dates for operating, livestock, and equipment loans held steady.

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What鈥檚 going on: 鈥淲e are attentive to recent data showing the resilience of economic growth and demand for labor,鈥� Powell said during a talk at the Economic Club in New York. 鈥淎dditional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.鈥�

• The Fed鈥檚 aim in raising rates has been to reduce inflation to 2%.
• Since it began raising rates in March 2022, however, unemployment has stayed largely steady, and 鈥渆conomic growth has generally remained above the 1.8% annual growth rate Fed officials see as the economy鈥檚 underlying potential.鈥�

A delicate balance: While Powell said there is evidence of a cooling labor market, the Fed must account for new 鈥渦ncertainties and risks鈥濃�攊ncluding the Hamas鈥揑srael war鈥攁s it seeks 鈥渢o balance the threat allowing inflation to rekindle against the threat of leaning on the economy more than is necessary.鈥�

• Data since the central bank鈥檚 last meeting, in September, have shown unexpected U.S. job growth and surprisingly strong retail sales, 鈥渙ffering inconsistent signals about whether inflation is on track to return to the Fed鈥檚 2% target in a timely manner.鈥�

Hike likely: Most Reuters-polled economists expect the Fed to raise interest rates at its next meeting on Oct. 31鈥揘ov. 1.  

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U.S. inflation eased in December for the sixth straight month following a mid-2022 peak as the Federal Reserve aggressively raised interest rates and the economy showed signs of cooling.

The consumer-price index, a measurement of what consumers pay for goods and services,听rose 6.5% last month听from a year earlier, down from听听and well below a 9.1% peak in June.

Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November. Many economists see听increases in core CPI听as a better signal of future inflation than the overall CPI. Core prices increased at a 3.1% annualized rate in the three months ended in December, the slowest pace in more than a year and down from 7.9% in June.

The figures added to signs thatinflation is turning a corner听following last year鈥檚 surge. They also likely听keep the Fed on track听to reduce the size of interest-rate increases to a quarter-percentage-point at their meeting that concludes on Feb. 1, down from a half-percentage point increase in December.

U.S.听stocks climbed听Thursday and investors bought U.S. Treasurys, lifting bond prices and weighing on yields. The S&P 500 added 0.3%, while the听Dow Jones Industrial Average听gained 0.6%, or 217 points. The technology-heavy Nasdaq Composite also rose 0.6%.

Core services and goods prices, change from a year earlierSource: Labor DepartmentNote: Core CPI refers to consumer-price index less food and energy. Core services refers to services less energy services. Core鈥媑oods excludes food and energy items.

Easing inflation follows several signs that U.S. economic activity cooled in late 2022. U.S. imports and exports fell in November from October, while听and home sales all declined. Job and wage growthslowed in December, though the labor market remained tight with听historically low claims for unemployment insurance听at the start of the year.

Goods prices, a key driver of inflation over the past year and a half, fell for the third straight month in December as prices fell for products such as autos, computers and sporting goods.

Improving supply chains and reduced demand have relieved price pressures on goods, but services prices continued to climb in part because of wage gains in a tight labor market. 

Some economists worry that still-high wage growth could keep consumers flush with cash and companies eager to raise prices to compensate, holding inflation above the Fed鈥檚 2% target.

鈥淭aming services inflation will be the Fed鈥檚 biggest challenge this year,鈥� said Ryan Sweet, chief U.S. economist at Oxford Economics. 

Alongside a sharp turnaround in agricultural economic conditions and lasting support from government programs related to pandemic relief, farm income and loan repayment rates both increased from a year ago鈥戔�慳t the fastest pace on record. The improvement in farm finances eased credit issues and contributed to softer demand for farm loans. With support from a strong farm economy and historically low interest rates, farm real estate values rose 10% from a year ago, which was the largest increase since 2013.

The outlook for profit opportunities in 2021 remained strong for most agricultural producers as commodity prices remained well above recent years. Conditions in the cattle industry remained somewhat weaker, however, and drought continued to hinder conditions for farmers and ranchers in some areas of the District. Nearly all banks reported that production expenses for both crop and livestock producers increased and cash rental rates in the District also increased, which could pressure margins going forward. Despite potential headwinds, bankers indicated they expected improvement in farm income and credit conditions to continue in the months ahead.

Strong prices for key agricultural commodities brought additional support to farm income in the Tenth District in the second quarter. Alongside multiyear highs in farm commodity prices, about 80% of bankers surveyed in June reported that farm income was higher than the previous year. Bankers鈥� optimism about farm income was greater than the previous quarter and corresponded with the strongest year-to-year turnaround in farm income since the survey began collecting that information in 2002.

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