Fed lowers funds rate
Interest rates, however, are not going to decline any time soon, according to Richard Brock
By Richard Brock, Brock & AssociatesFor once let’s skip over discussing corn and soybeans. Both commodities are attempting to make a bottom. If the lows are not in prices now, they will be soon. Carrying costs in both corn and soybeans would indicate that a long-term base building bottom will be formed soon. Harvest is nearing completion. A good year for grain merchandisers to make considerable profits as profitable carrying charges exist in both commodities.
Let’s address the cost of money and inflation. If interest rates are headed lower as the Fed is indicating, then the price of treasury notes should be going up. As the chart shows since the Fed lowered the Fed Funds rate from 5.5% to 5.0% in mid-September, 2 yr treasury note prices have actually gone down and not up. That is a strong indication that the marketplace does not believe that rates are headed lower. Instead, they are headed higher.
The other graph is the U.S. monetary base. Since Covid 19 hit, the monetary base increased by 86% peaking in 2022. After a short-term drop, money supply is back to increasing again.
It’s an Election Year
In case someone has not turned on their TV in the last 12 months, there is by far more money being spent on elections this year than ever in history. Both parties are making enormous amounts of promises. Cuts in taxes and giveaways are common on both sides of the fence. No matter who wins the presidential election if they follow through on half of their promises then spending is going to increase several times over. The definition of inflation is quite simple. It’s when a country has more money chasing the same amount of goods or fewer goods being chased by the same amount of money. In either case, prices are headed higher.
The Bottom LineIf you have near-term plans to increase the size of your business, and are anticipating lower rates to do so, you’re likely betting on the wrong horse.Not only are elections inflationary but so are wars. This war is not over yet.Interest rates are not going to decline any time soon.
