Although monetary and fiscal policies are officially separated, in the long run there are pressures that bind them together. Both the Fed and fiscal policymakers seek a strong and stable economy, and fiscal and monetary decisions affect each other. Financial Market Linkages to U.S. Agriculture Interest rates closely and inextricably link U.S. agriculture to national financial markets in a number of ways. 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. The interdependence of world financial markets also has important implications for U.S. agriculture. There are some countries, like 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. When the United States significantly expands its public debt, as it has throughout the last two decades, it uses up such a large quantity of funds that it can drive up both domestic and world interest rates.