The Federal Reserve announced last week that it was going to begin the process of unwinding its unprecedented stimulus packages implemented during the last decade.
After the financial crisis of 2008, the Fed began accumulating a massive portfolio of mortgages and Treasury bonds to lower interest rates and thereby stimulate the economy. The Fed was successful in driving interest rates near zero, but now it wants to allow rates to rise again, which is leading the Fed to begin selling off its stockpile of more than $4 trillion in debt later this year.
For most consumers, the greatest impact of these measures will be rising interest rates on savings accounts, credit cards, auto loans, and new mortgages, which may push people to save instead of spend in the coming years.
Investors took the announcement as a sign of confidence in the U.S. economy, pushing the Dow Jones and S&P 500 futures contracts to all-time highs.
Meanwhile, bond futures, gold, and silver all fell to one-month lows as investors avoided those assets, as they typically drop when interest rates rise. Gold dropped under $1,290 per ounce, while silver sank below $16.80 per ounce for the first time since last August.
China bids for beans
As Midwestern farmers prepare to harvest this year’s soybean crop, they are being met with a welcome surprise: rising prices. On Friday, November soybean futures reached a six-week high at $9.85 per bushel as investors noted the low price and rising demand.
Bean prices have been climbing on news of better demand for U.S. soybeans, especially from China, the world’s largest buyer.
Additionally, there have been weather concerns in Brazil and Argentina, our biggest competitors for soybean sales. Both South American nations are preparing to plant the spring crop (seasons are inverted in the Southern Hemisphere), and weather setbacks could ultimately reduce their crop size and boost demand for U.S. exports.
Despite the recent rally, prices are still down sharply from their midsummer highs over $10.40 per bushel, a price reached when drought fears were sending the market skyward. Recent assessments by the USDA continue to show a record-breaking soybean crop this year, which has helped contain prices.