As we wrap up 2017 and turn our focus to a new year, many of us begin to wonder what the economy will do and what will interest rates will look like in 2018. Many experts are scratching their heads at this question, with most of us having expected rates to be higher today than they are. In fact, today’s 10 Year Treasury note is actually two basis points lower than rates from January 2017. The Fed is forecasting three, and possibly even four, rate hikes in 2018. It is hard to say for certain at this point though, as Janet Yellen finishes her term and Jerome Powell prepares for his new role as Fed Chairman.
Hall and Hall has once again seen positive growth in our loan portfolio as demand for capital continued through 2017. The demand for borrowers with a strong financial position and adequate cash flow is back. Not that it ever really left for these types of borrowers, but it has once again become competitive in the marketplace for these types of credits.
Certain traditional ag producers are feeling the pinch of cashflow struggles as their inputs have remained fairly constant while the value of their commodities has retraced. Those with nonfarm income continue to subsidize their operations both for capital debt requirements as well as other operating expenses. We continue to see those operations that are profitable find ways to add value to their product. Should rates increase 0.75% to 1% over the next year these operations that are struggling will see themselves in a situation they may not be able to overcome. Their liquidity is already tight and debt servicing requirements will be impacted by these increases.
- Federal Reserve is forecasting 3 rates hikes in 2018.
- Inflation in the low 2’s will continue to slow these hikes.
- Profitable operations find ways to add value.
- Build liquidity as opportunity will present itself.