2017: The Year of Rising Rates?

On Wednesday, the Federal Reserve raised interest rates in a move that was widely expected, taking the short-term Federal Funds rate up to 0.75%.

More surprisingly, the Fed raised its long-term expectations for interest rates, indicating that they expect to raise rates another three times in 2017, essentially doubling short-term rates.

The Fed is returning interest rates to normal levels after years of near-zero rates that were in place to stimulate the economy by making borrowing cheaper. Higher rates also help to slow down inflation, which is slowly becoming a concern as it approached the Fed’s “ideal” level of 2.0%.

The biggest winner from these announcements was the U.S. dollar. Rising rates make dollar-valued investments more attractive to foreign investors, especially those in economies with near-zero rates like Japan and the EU. A flood of new interest in the greenback pushed it near a 13-year high against other currencies.

Stocks generally took the news as a good sign, seeing the Fed’s actions as a vote of confidence in the economy, bringing the Dow Jones futures near an all-time high of 20,000. Meanwhile, gold, treasury bond, and foreign currency futures sold off as is typical during a strong dollar environment.

Cattle prices neared a four-month high this week as Arctic temperatures descended across the Great Plains. Subzero temperatures prevent cattle from gaining weight, limit the ability to bring them to market, and can even kill the animals, making cold weather a serious concern for cattle producers.

Even before the cold weather hit, prices had been exploding after hitting a six-year low in early October. Gains have been spurned by bargain-hunting buyers who have gotten bullish on beef after recognizing that national cattle inventories are near a four-year low. Recently, prices have gained more than 16 cents per pound, a 17% gain.

However, some market watchers fear a setback could be in order after almost two months of unrelenting gains. Meatpackers typically see less demand for meat after the holidays and should reduce their purchases in the coming weeks, which could undercut the searing-hot market.

As of midday Friday, December live cattle traded for $1.12 per pound.

Hog prices, too, have been skyrocketing, touching a four-month high near 64 cents per pound on Friday.