Given the last seven days and the next seven, I am anxious to report on five things happening right now that can affect our daily lives and businesses. As I’ve mentioned several times in the past, a lot of what we experience on a day-to-day basis comes from home, but given the global economy we live in, changes across the globe can have a huge impact locally.
As expected, last week the Federal Reserve raised their target benchmark, the Federal Funds rate by 75 basis points. While that wasn’t a major surprise, the question was around what impact lingering inflation would have. Inflation has proven stubborn to control. The jobs numbers – specifically job openings – have continued to add fire to the Fed’s decision to keep their foot on the interest rate pedal. The September job openings report showed a number around 10.7 million openings – an increase of about a half million since August.
In breaking down that data, the September numbers showed more than 1.85 jobs available for each person to be formally unemployed. For perspective, that number would have been around .25 jobs during the height of COVID-19 in 2020 and in early 2019, it was around 1.20. While there has been a slowing impact around housing sales and starts, among other factors, the Fed has yet to get to their targeted inflation rate. They will continue to look toward their target range of 5.00% by March 2023.
The only silver lining may be a smaller hike on December 14. Depending on a lot of different circumstances, we could see a target of 4.5 to 5.5% for 2023. Many factors will play into future action. If you’re using variable rate financing, pay attention to these changes.
Brazil is South America’s largest economy with a population of 215 million people. Their most recent election has been interesting to watch. Both candidates have been accused of fraud while in office. Luiz Inacio “Lula” de Silva was elected by a narrow majority. He was a two-term president who left after 2010 due to corruption charges. His comeback includes a victory over current president Jair Bolsonaro. Leftist Da Silva has promised socioeconomic changes and protection of the Amazon rain forest. Politics aside, consider Brazil’s impact in the agriculture world:
- Brazil is the largest country in terms of arable land
- Top five producer of 34 commodities
- Largest exporter of fresh chicken meat
- Largest soybean exporter in the world (more than 50% of total exports)
- Largest exporter of beef
- Fourth largest milk producer in the world
This may or may not seem relevant, but when you have a country that has a lot of resources, improved infrastructure, export facilities and a movement towards a stable government, it’s certainly an area to keep an eye on.
Russia v. Ukraine
While I wish there was a resolution to end this conflict, it seems that we hear more of the same every day and a peaceful end is not anywhere in sight. I’ve discussed the impact both Ukraine and Russia have on the agriculture exports. For the benefit of the readers, it’s good to know that grain shipments continue under a UN-brokered agreement. The developed world understands what nations under stress with food insecurity can experience. There are a few basic needs and all people deserve access to nutrition. As of last week, Russia had pivoted on its agreement with several countries on allowing safe passage of grain from Ukrainian ports. Russia had backed off a ban to such agreement after its claims of drone attacks by Ukraine on its fleet in the Sevastopol region. Whether through international pressure or a direct recognition of food insecurity, a decision was eventually made to allow shipments of product for now. Ukraine ranks among the top five global exporters of barley, corn and wheat responsible for sending around 45 million tons of grain every year to other countries.
I promise not to get too deep into politics, but I can guarantee both sides of the aisle have inundated your inbox, mailbox and TV viewing lately. I write this just pre-election, knowing that polls can be close with some uncertainty for possibly days or weeks after polling ends. What’s at stake moving forward are local control, state control and the balance of the House and Senate. From the best guess today, it appears the House may flip to the Republican party. The Senate appears to be too hard to guess today on where control lands. There’s been no shortage of last-minute stumping for key candidates in key states. No one has a crystal ball to see where votes come in and it may be some time before we have a clear picture on the exact results.
We do know that key topics like taxes, the deficit, abortion rights, foreign policy, inflation and many other things that could see an impact. Time will tell on who is in office and the impact it has on how we move forward as a nation. One thing I’m watching is our deficit spending and the impact higher interest rates have on our national debt. In looking at projections, the total interest payment on U.S. debt could be $580 billion this fiscal year, up from $399 billion in the most recently completed fiscal year. Based on the Congressional Budget Office’s May 2022 estimate that number could be $1.19 trillion in interest expense annually by 2032.
The last point of awareness is around the value of the U.S. dollar. For those with exposure to foreign markets, this should be an item you’re following very closely. While a strong dollar can have benefits for those looking to travel or transact dollars internationally, it can be very costly for those who need to buy U.S. products. The Fed’s aggressive rate hiking has majorly influenced the rising dollar. While I won’t get into all the factors that have driven the dollar higher, it’s important to keep an eye on.
In the meantime, we have seen the Euro drop to a 20-year low in September against the dollar. The dollar also hit its highest level against the yen since 2000 back in October. In regard to global trading, the U.S. dollar was responsible for around 40% of all global trade this year. Given the exposure, it’s important to keep an eye on and the impact it can have on the international appetite for trade in U.S. dollars and their willingness to keep transacting.