By STAN MADDUX

Indiana Correspondent

LOUISVILLE, Ky. — Farmers in their budget planning should make room for more jumps in the cost of lending, following the third interest rate increase by the Federal Reserve this year. That’s according to Matt Monteiro, vice president of finance and treasurer at Farm Credit Mid-America out of Louisville.

On the bright side, he said interest rates are still a bargain after last week’s uptick, compared to what they were prior to the financial crisis a decade ago. “While increases don’t feel good, it is important to just keep that perspective and make decisions accordingly for your operation,” Monteiro said.

The Federal Reserve on Dec. 13 increased the federal funds rate by 0.25 percent to a 1.25 to 1.5 percent range. It’s the third rate hike this year, but the Federal Reserve stated that the rate, when taking into account current unemployment and growth, should be in the 2.8 percent range.

The rate was increased once in 2016 and one time in 2015. Until then, to avoid the risk of a setback in what’s been a slow economic recovery, the Federal Reserve was hesitant to raise the federal rate after dropping it to practically zero to help stimulate growth following the 2008 economic downturn.

With the recovery now seemingly picking up steam, the Federal Reserve estimated three more interest rate hikes of 0.25 percent for 2018 and two more of equal amounts in 2019.

“If that materializes, then we would be just slightly below the 2.8 percent rate that the Fed believes would be normal in the U.S., with full employment and moderate growth,” said Monteiro.

The stated purpose of increasing the rate is to prevent the economy from overheating and to keep inflation in check. Generally, the federal funds rate applies only to the most creditworthy lending institutions. It’s the amount charged on overnight loans banks and credit unions issue to each other to help with cash flow.

Monteiro said increases in the federal funds rate doesn’t always result in higher prime rates assessed to the consumer, but it has in this case. The prime rate has risen to 4.5 percent.

With many farmers struggling with lower grain prices, Monteiro said they should monitor closely what the Federal Reserve might do with interest rates in the future and adjust their budgets to their financing needs.

He also recommended farmers consider locking in their rates if they haven’t already, and think strongly about borrowing or refinancing long-term, with the interest rate on short-term loans being just slightly lower. “You’ll pay less of a premium today over short-term lending than at most other times.”

Farm Credit Mid-America is a cooperative owned by customers/borrowers.

In March, the first patronage payments or dividends from the lending institution were issued to its customers. “We plan to continue paying patronage to ag customers, which is especially valuable in the current ag economy,” said Monteiro.

The Federal Reserve also estimated the nation’s gross domestic product will increase in 2018 from 2.1 to 2.5 percent, and called the labor market “strong.”