Congress, however, gave the FOMC two jobs — foster maximum employment and keep prices stable. The Fed’s mandate does not include easing the government’s debt-financing burden.

At his press conference, Warsh said, “The labor side of the committee’s remit is in good shape,” with a low and stable unemployment rate and a generally strengthening economy. On the other side of the remit, inflation has been above the FOMC’s 2% goal for five years and hasn’t shown recent signs of easing.

“Inflation is too high and has been for too long,” Warsh said. He described the quarter-point interest rate hike as a step toward a “timelier return” to the 2% goal. He promised the FOMC will deliver price stability.

Even before the Fed’s rate hike, which will mainly affect short-term interest rates, market interest rates on longer-term bonds were rising. The 10-year Treasury yield has recently risen to as high as 5.04% for the first time in 20 years.

Some of the reasons for this market trend could disappear in time; an end to the Iran War would help, and business-cycle history suggests the economy won’t be strong forever. But it’s also possible we’re seeing a change in underlying supply and demand fundamentals. When borrowers want more funds than lenders are eager to lend, interest rates rise.

Demand for funds has indeed been rising. Warsh cited “competition for capital” from data center and other AI “hyperscalers,” which is real. While Warsh didn’t mention it, the U.S. Treasury’s borrowing needs have shot up, as have other countries’ borrowing needs.

On the supply side, some of the big foreign investors in U.S. Treasuries — Japan, China, EU countries — are, for a variety of reasons, pulling back.

In response to the 2007 financial crisis, central banks around the world, including the Fed, cut interest rates sharply. Since then, rates have fluctuated but in general have remained at relatively low levels. Some economists think this low-interest-rate era is ending.

If they’re right, that’s bad news for farmers. A couple of years ago, former DTN lead analyst Todd Hultman enunciated what I’ve been thinking of as the 3% rule: A federal funds interest rate below 3% would take some of the pressure off the ag economy.

But what if that benchmark interest rate never gets below 3%, or takes years to get there? Estimates I’ve seen of the average historical federal funds rate range between 4.5% and 5.5%.

Another major financial crisis or a worldwide recession could bring it back. Whatever its effect on interest rates, that’s not something farmers should wish for.

Urban Lehner can be reached at urbanize@gmail.com

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