Both the Fed and fiscal policy makers seek a strong and stable economy, and fiscal and monetary decisions affect each other. Financial Market Impacts on U.S. Agriculture Interest rates closely and inextricably link U.S. agriculture to national financial markets in a number of ways. This compares to 15 percent in 1996. Agriculture is particularly sensitive to interest rates because it is one of the most capital intensive industries in the economy. They also affect the cost of long-term capital investments.
Interest rates are a key determinant of land values, the base of wealth in agriculture.
Farmland prices depend on the relationship between expected earnings and interest rates. Even when land prices remain constant and they fell sharply in the 1980s a higher interest rate lowers the expected value of future profits just as it makes borrowing more expensive. The interdependence of world financial markets also has important implications for U.S. agriculture. There are some countries, such as Canada or Belgium, which have economies small enough that they can borrow continuously without influencing domestic or world interest rates. For the United States, this is not true.