1. Jason Henderson Vice President and Branch Executive Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha June 16, 2009 The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

2. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division  The Economic Recovery is Underway  Concerns Shift from Growth to Inflation  Implications for Agriculture

3. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Real GDP Growth Annual percent change Source: Bureau of Economic Analysis Federal Reserve Board of Governors Federal Reserve Projection Central Tendency “U”“W”“V”“L”

4. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Unemployment Rate 2007 Monthly Average Source: Bureau of Labor Statistics

5. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Unemployment Rate May 2009 – April 2010 Average Source: Bureau of Labor Statistics

6. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division U.S. Monthly Retail and Food Sales Billion dollars Source: U.S. Census Bureau 2007 2008 2009 2010

7. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Thousands Source: U.S. Census Bureau U.S. Housing Markets Index

8. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Index U.S. Manufacturing Activity Indices Source: Institute of Supply Management Non-Manufacturing Manufacturing

9. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Structures Equipment and Software Corporate Profits and Nonresidential Fixed Investment Percent change from year ago Source: Bureau of Economic Analysis Corporate Profits After Tax

10. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Source: Bureau of Economic Analysis and Federal Reserve Board of Governors Billion dollars U.S. Real Net Exports of Goods and Services and Value of the Dollar Index Broad Dollar Index (right axis) Real Net Exports (left axis)

11. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division U.S. Government Outlays Billion Dollars Source: Congressional Budget Office, March 2010 Projected

12. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division U.S. Debt as a Percent of GDP Percent Source: Congressional Budget Office, November 2009 CBO Alternative Fiscal Scenario CBO Extended Baseline Scenario

13. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division  The Economic Recovery is Underway  Concerns Shift from Growth to Inflation

14. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Money * Velocity Price = Quantity Definition of Inflation: Too much money chasing too few goods M V Q Quantity Theory of Money

15. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Federal Reserve Balance Sheet: Assets Billion Dollars Source: Federal Reserve Bank of Cleveland

16. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division  Hold to maturity  Sell assets  Keep reserves on deposit at the Fed.  Interest on excess reserves  Reverse repurchase agreements  Term deposits  All strategies lead to higher interest rates.  When?  How fast?

17. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Nonfarm Employment Change and Unemployment Rate Thousands Source: Bureau of Labor Statistics Percent

18. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Financial markets

19. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Billion dollars Source: Federal Reserve Board of Governors Farm Debt Outstanding at Commercial Banks

20. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Percent Source: Federal Reserve Board of Governors Charge-off and Delinquency Rates On Agricultural Loans

21. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Financial markets U.S. consumer demand

22. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Percent change from previous year U.S. Food Expenditures Source: USDA 2010 data through March

23. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Financial markets U.S. consumer demand Export activity

24. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division GDP Growth Source: IMF, April 2010 Percent Change

25. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Billion dollars Source: USDA U.S. Agricultural Exports 2007 2009 2008 2010

26. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Index Source: Federal Reserve Board of Governors Value of U.S. Dollar (Broad Index)

27. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Financial markets U.S. consumer demand Export activity Energy markets

28. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division World Crude Oil Supply Balance Million barrels per day Source: Energy Information Administration Forecast: May 2010

29. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Dollars per barrelDollars per thousand cubic feet Crude Oil and Natural Gas Prices Source: Energy Information Administration

30. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Financial markets U.S. consumer demand Export activity Energy markets Farmland values

31. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Ratio Calculations based on Iowa State University and University of Nebraska data Farmland Values to Rent Ratio

32. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Source: USDA U.S. Debt Repayment Capacity Utilization Farmers do not have enough income to service debt Farmers do have enough income to service debt Index

33. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division Financial markets U.S. consumer demand Export activity Energy markets Farmland values Government policy

34. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division  Financial markets and regulation  Environmental policy  Energy policy  Health care policy  Agricultural policy  Rural development  ???

35. Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public and Community Affairs Division  The economic recovery is underway.  Stronger consumer demand is boosting business activity.  But, deleveraging will limit the recovery.  Questions will switch from growth to inflation.  Will high unemployment limit inflation?  What will start the “chasing”?  The recovery brings opportunities and risks to the farm sector.