Caution rules as recession ends, policy may tighten

by Morton Sosland
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Last week’s statement by Ben Bernanke, chairman of the Federal Reserve, that "from a technical perspective the recession is very likely over at this point" was lessened in its pleasure by awareness that Mr. Bernanke and his associates must also be thinking about tightening monetary policy. Recovery from the current recession, which started in December 2007 and is ranked as the worst setback since the 1930s, is credited in part to the quick move by the Fed to lower interest rates to record lows. Interbank rates are now in a range of zero to 0.25%. Once rates start rising, grain-based foods and business in general will be facing a total different reality.

Along with low interest, markets in general and commodities central to grain-based foods are impacted by weakness in the U.S. dollar. As the U.S. Dollar Index fell to the lowest in a year, several markets, especially for crude oil, moved higher as a consequence. Conventional wisdom would also see wheat, corn and soybeans advance in response to dollar weakness, but these grains feel the weight of large supply increases and cautious demand.

Concern about the long-term ability of the U.S. dollar to hold its value is among the principal sobering aspects of the long-awaited economic turnaround. Similarly, forecasts that employment gains will lag any economic improvement is another source of caution for grain-based foods in looking forward to the positives of an improving economy in the wake of more than a year and a half of troubling recession.

This article can also be found in the digital edition of Milling and Baking News, September 22, 2009, starting on Page 4. Click here to search that archive.

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