Kevin Warsh will be the center of the financial universe Wednesday afternoon when he delivers his first news conference as Federal Reserve chairman. Few players have more skin in the game than the U.S. farmer.
Warsh, who was sworn in last month to succeed Jerome Powell, has taken the helm of the world’s most powerful central bank at a time of high economic uncertainty as a result of the Iran war. It’s also a period of increasing strain for a large segment of U.S. farmers who would stand to feel pain from a hike in interest rates but also stand to suffer if resurgent inflation adds to rising input costs.
The Fed is seen as virtually certain to leave the fed funds rate unchanged at 3.5% to 3.75% when it concludes its two-day policy meeting at 1 p.m. CT. But expectations at the beginning of the year for further rate cuts in 2026 have given way to uncertainty. Fed funds futures traders are now pricing in a rate hike by year-end, while money-market options reflect conflicting views on the direction of rate policy.
“I’ve told producers, basically, you’ve got to make today’s interest rate environment work for you,” Matt Erickson, senior research analyst at Terrain, told Pro Farmer in an interview.
The current fed funds rate translates to a bank prime loan rate of 6.5% to 7%. While the Fed may or may not hike in coming months, inflationary tailwinds make it unlikely rate cuts will be seen soon. That’s an environment in which producers need to prioritize liquidity and working capital, Erickson said, emphasizing that “working capital is the most basic risk-management tool that can back up your operation.”
Erickson’s other top recommendation: Any capital expenditures or operational expansions must be strictly focused on increasing efficiency and lowering per-unit production costs.
Warsh’s comments are certain to focus on the broader economy, but it’s unclear how he will describe the outlook for rates. Will Warsh show concern on the inflation front and hint at a hawkish stance, a move that would dispel ideas he’s eager to comply with President Donald Trump’s desire for low rates? Or will he argue that disinflationary pressures are at play under the surface and that the effects of the Iran war should be looked through?
Keep in mind that when it comes to monetary policy, the Fed chair is head of a rate-setting committee and has one vote. And coming into the June meeting, it’s clear that the committee overall remains wary about the inflation outlook, a concern that won’t be immediately undone by the pullback in crude prices following the U.S.-Iran agreement to open the Strait of Hormuz. In other words, even if Warsh is leaning toward a more dovish stance, he’ll have some work to do to bring fellow policy makers around to his point of view.
Farmers are facing an agricultural downturn now in its third year, said Erickson. It began in 2023 with the hog sector, due to high feed costs, and has transitioned to the row-crop sector. Row-crop producers are enduring margin compression, with excess supply depressing prices while input costs remain elevated and sticky. The livestock sector, particularly cattle, remains a bright spot and the primary driver keeping the farm economy afloat.
The rate outlook also carries important implications for land values, which have proven resilient across the Corn Belt and the Plains, Erickson said. Support comes from non-ag buyers, including renewable energy projects, data centers, and commercial development.
Also, many producers have been insulated from higher rates by locking in ultralow rates during the pandemic era, he said. Cash rents, meanwhile, have remained “sticky” and are likely to be flat or only slightly lower in 2027 as a pool of producers remains ready to rent ground when an existing tenant drops out.
Warsh is expected to shake things up at the Fed. This includes how the Fed communicates with market participants. He has indicated that he thinks the Fed could be more effective if it gave fewer clues to its policy setting plans.
The Fed over the last two decades or more has embraced a policy of “forward guidance.” It consists of giving financial market participants strong indications on the direction and duration of monetary policy moves through speeches, congressional testimony and forecasts, including the so-called dot plot – a map of individual policymakers’ expectations for the fed funds rate over time. It was only in 2011 that the Fed chief began holding news conferences after policy decisions.
This is in contrast to the Fed’s more opaque approach prior to the economic contraction that followed the Sept. 11, 2001, terror attacks. Previously, Fed officials tended to be somewhat vague when it came to the policy outlook. As former Fed Chairman Alan Greenspan once told lawmakers, “If I seem unduly clear to you, you must have misunderstood what I said.”
Don’t look for Warsh to roll the clock all the way back to the 20th century. But he does have scope to make the Fed communicate less. That could eventually mean fewer news conferences and perhaps fewer forecasts, including the dot plot. Some Fed watchers have speculated that Warsh may opt not to submit a “dot” of his own in the forecast that will be published Wednesday.
For farmers and others, that could mean navigating a more uncertain policy environment.
“The Fed is not going to become more hawkish or dovish because it communicates less with the market,” said Steve Barrow, a London-based rates and currency strategist with Standard Bank, in a note. “But it will become less predictable and that could generate increased volatility in asset prices compared to the current situation.”
Investors still have the dot plot for now, and they will be looking for changes after the last such forecast in March (they are updated quarterly) indicated no rate cuts for 2026 and possibly none for 2027. They also expect the Fed’s policy statement to reflect that the next move is equally likely to be a rate hike or a cut, as opposed to current language that indicates a cut is more likely to be the next move. This is after policymakers dissented at the May policy meeting by calling for the Fed to remove its “easing bias.”
An outcome that’s seen shifting the Fed shifting to a neutral bias and a dot plot that signals no 2026 rate cut would likely be taken in stride by financial markets, said Tom Essaye, founder of Sevens Report Research, in a Tuesday note. A more “hawkish” tone – suggesting policymakers are more fixated on an inflation threat – could see fed funds futures traders up the odds for a rate hike. Same if the dot plot indicates an increased rate hike possibility. That could take stocks down sharply and boost the 10-year Treasury yield and the dollar, Essaye said.
Meanwhile, the high degree of uncertainty around the rate path and the potential for a less communicative Fed all underline the need for producers to remain in close communication with their lenders, marketing advisors and crop insurance agents, said Terrain’s Erickson.
“Communication is going to be key,” he said. “You’ve got to have it.”