Sticky Inflation Puts Fed on the Horns of a Dilemma

Brian Earnest , Tanner Ehmke , Jacqui Fatka , Rob Fox , Corey Geiger , Jeff Johnston , Christina Pope , Abbi Prins , Billy Roberts and Teri Viswanath

April 11, 2024

As we pointed out in our Year Ahead report in December, expectations that the Fed would cut rates six or seven times were completely irrational. The market has belatedly come around to our earlier view. But while many now completely dismiss the chance of an economic slowdown, we believe the Fed still has concerns. That’s why Chairman Jerome Powell reiterated his belief that three rate cuts were still warranted in 2024.

After the best three-year stretch for farm incomes in history, the coming year will be challenging for row crops due to ample domestic supplies and the relentlessly strong U.S. dollar. Unfortunately, U.S. farmers continue to lose global export market share, and policy makers have eschewed trade agreements that would improve international market access. Meanwhile, the farm bill remains in a state of flux amid the highly partisan divides in Congress.

While commodity markets have steadily trended lower over the past two years, natural gas prices have completely bottomed, dropping 80%, and are now flirting with all-time lows. While troubling news for producers, near-record low natural gas prices are a boon for American consumers as well as for businesses that use a lot of natural gas to produce basic materials such as steel, concrete, cardboard and fertilizer.

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