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Farm Borrowers May Not Benefit from Cut in Interest Rates

Economists not certain usual trends will be the case this time around.

Published on: Oct 30, 2008

Usually when the Federal Reserve cuts interest rates as they did on Wednesday, economists says that this will help farmers directly by bringing them lower interest rates on their loans, but this time Ohio State University agricultural economist Carl Zulauf says that might not be the case. He says there is so much uncertainty in the financial world that he's not sure farmers will see lower rates from this.

"Most banks are trying to build capital reserves because of the bad debt situation and the requirements they have," Zulauf says. "So would in fact they simply take that and then basically take the differential and help them rebuild their capital reserves rather than pass it through to the borrower."

And if they did pass it through to farmers, Zulauf says they may decide to pass only part of it down depending on the credit worthiness of the borrower, which they will likely be checking a lot more closely than normal. According to Zulauf, the Fed will be watching how this translates through the economy as it considers the need for more rate adjustments in the future.