The economy remains strong, but volatility and uncertainty cloud the future

April 3, 2025

While the Federal Reserve has opted to leave its fed funds rate unchanged until at least May—possibly longer—the new administration’s quick-draw approach to policymaking has clouded the economic crystal ball. The economy generally remains strong, but signs of slowing growth, higher unemployment and higher-than-desired inflation are emerging. Tariffs could cloud the picture even more.

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Interest rates

Fed keeps rates steady; slower growth and slightly higher unemployment ahead

Jeff Milheiser

The Fed’s mid-March decision to leave the target range for the federal funds rate unchanged at 4.25% to 4.5% seems like more of the same, but the commentary behind the decision tells a more complete story.

Fed Chairman Jerome Powell cited softening consumer spending and said he expects the economy to grow at a slower pace this year, but that chances for a recession continue to be remote. The Fed also expects inflation to rise from 2.5% to 2.7% and for the unemployment rate to increase to 4.4% by year-end.

The Fed also noted that it is reducing its sale of U.S. Treasury securities—which it had amassed during the pandemic—without reinvesting the proceeds, to $5 billion per month from $25 billion per month. The move reduces the supply of Treasurys in the market, which should keep longer-term Treasury rates lower than they would be otherwise.

Moving ahead, expectations for future rate cuts in 2025 vary slightly. The market is currently pricing in two to three rate cuts by the end of the year, while the Fed's median forecast is for two rate cuts in 2025.

In late March, however, Atlanta Federal Reserve President Raphael Bostic said he foresees slower progress on inflation and anticipates the Fed will cut rates only once—by just one-quarter percentage point—by year-end.

The effects of President Trump’s new tariff regime will weigh heavily into the Fed’s decision-making. The next Fed meeting occurs May 6 - 7.

Jeff Milheiser is vice president, Funding & Investments in CoBank’s Treasury division. Jeff graduated from Purdue University and has been with CoBank for more than 22 years.

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Derivatives

Customer hedging activity continues apace

Eric Nickerson

Market volatility continues to be an unsettling theme for customers.

Concerns over economic growth—if it is slowing, how much and in what ways—continue to drive conversations about hedging and increased customer activity.

Recently, customers have shown increased interest in several range-bound products, such as interest rate collars or interest rate caps, rather than interest rate swaps, which fix an interest rate.

Eric Nickerson is CoBank’s head of Customer Derivatives. He has 25 years of experience providing financial risk solutions to corporate and financial institutions. Eric joined CoBank in 2019 after 19 years in the securities industry.

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Capital markets

Competition is back; current activity focuses on refinancing, but loan origination is expected to increase

Craig Smith

As pendulums tend to do, the leveraged loan market pendulum is swinging back towards commercial banks and institutional lenders, and away from private debt lenders.

Accompanying the pendulum swing is some good news: commercial banks and institutional lenders are open to lending again after being relatively dormant from August 2022 through early 2024.

Private debt lenders enjoyed 18 to 24 months without significant competition from institutional and commercial bank lenders, which allowed them to dictate pricing. Now, with competition back, loan pricing has become more competitive, and financing terms and conditions are more flexible, diminishing the pricing power of private lenders.

Most of the current activity continues to be in refinancing, with borrowers seeking to lower their borrowing costs, in some cases significantly. Still, there are indications in the marketplace that loan officers are optimistic about new loan activity in 2025.

Craig Smith is managing director, Capital Markets at CoBank. Prior to joining CoBank in 2019, he worked in investment banking and as an M&A, securities and banking attorney.

Market Focus

Agribusiness

Grain prices retreat; farmers anticipate government assistance if tariffs bite

Marcus Wilhelm

Farmers continue to take a measured approach in response to current market dynamics and the imposition of new tariffs around the globe.

An early-January bump in grain prices was short-lived, followed by a 60-cent decline in corn prices and an 80- to 90-cent drop in soybean prices. The decline stemmed from fundamental supply and demand factors—led by a corn marketplace flooded with sellers—along with a resulting drop in corn futures contracts.

The number of long corn contracts fell from 400,000 to just over 100,000 in roughly two weeks. Soybean crush experienced its first year-over-year drop in February, and soybean processors are modestly pulling back in terms of production.

Still, there are underpinnings of support, especially in the corn-wheat complex. Exports continue to do well, outpacing previous years. Wheat is still tight globally, and some potential production issues could be positive for corn and wheat.

Of course, the big questions are about tariffs. We now know President Trump’s tariff plans, but their effects are unknown and many reciprocal tariffs and their effects are pending.

With the administration’s discretionary account nearly depleted, immediate assistance to producers will depend on congressional action. Cooperatives and other grain exporters will likely also be affected, but the USDA does not assist those operators.

This time around, additional factors are complicating the tariff questions. It is generally understood how tariffs work in isolation. However, when tariffs are accompanied by swift policy changes, the environment can become more uncertain.

Marcus Wilhelm is Western region president of CoBank’s Agribusiness Banking Group, based in Omaha. Marcus also co-owns an 800-acre corn and soybean family farm in Unadilla, NE.

Recent CoBank Capital Markets Activity

Dairy

Dairy Cooperative

$250M Credit Facility
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seed & crop

Seed & Crop Protection Provider

$750M Credit Facility
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Fruit

Fruit Preserves Processor

$2B Credit Facility
Joint Lead Arranger, Bookrunner & Syndication Agent

Digital Infrastructure

BEAD program is still on track for now, but changes are on the way

Jeff Johnston

Shortly after his inauguration, President Trump halted disbursement of funds under the $9.7 billion Empowering Rural America (New ERA) program pending a 90-day evaluation period.

While the fate of New ERA is still up in the air—and its dissolution would set back clean power generation in rural communities—another rural funding program is facing a different type of scrutiny focused on making improvements at least for now.

According to a statement by Commerce Secretary Howard Lutnick, the Broadband Equity Access and Development program will be revamped to eliminate some of the program's original requirements.

The BEAD program, funded by the Infrastructure Investment and Jobs Act of 2021, includes $42 billion in grants to improve high-speed internet access across all U.S. states, Washington, D.C. and five U.S. territories. These grants are designed to support partnerships among states or territories, communities and stakeholders to develop essential infrastructure and boost high-speed internet adoption. The program prioritizes unserved areas lacking internet access entirely or those with speeds below 25/3 Mbps, as well as underserved areas with access speeds below 100/20 Mbps.

As originally structured, the program faced challenges with fewer than 50% of the targeted operators participating due to burdensome reporting requirements and a fiber-first strategy that is perceived as too restrictive.

The Trump administration is now looking to make the program more technology-agnostic, potentially opening the door for increased competition from fixed wireless and satellite internet providers, including, potentially, Elon Musk's Starlink. This raises concerns that existing rural broadband customers could be impacted if Starlink or other subsidized satellite services become viable alternatives.

Stay tuned. Watch the NTIA website for upcoming changes.

Jeff Johnston is lead economist, Digital Infrastructure at CoBank. Prior to joining CoBank in 2018, Jeff was an equity analyst covering the tech, media and telecom sectors, and held senior management positions in the telecommunications industry.

Recent CoBank Capital Markets Activity

Data Center

Data Center

$2B Credit Facility
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GCI

GCI, LLC

$750M Credit Facilities
Sole Lead Arranger and Sole Book Runner for the Term A Loan

Data

Data Center

$3.7B Credit Facilities
Initial Coordinating Lead Arranger & Joint Book Runner

Power & Energy

Top of mind at PowerXchange 2025

Brock Taylor

CoBank leveraged the NRECA’s 2025 PowerXchange conference to engage with customers and gain deeper insights into the electric cooperative industry as an era of sweeping change begins. 

Not surprisingly, discussions at this year’s conference centered on the elephant in the room—skyrocketing energy demand fueled by electrification, rapid data center growth and reshoring of U.S. manufacturing. 

However, the devil is indeed in the details, and several more nuanced topics arose from our discussions there.

Multi-year build cycles and ongoing electric rate increases
As demand surges and the utility industry struggles to keep pace by building new plants and expanding critical infrastructure to ensure reliability, co-op boards will face challenges from multi-year build cycles and raising rates to meet escalating fixed costs. 

Supply chain challenges
Supply chain delays for essential power generation components—turbines, transformers and breakers—could prolong build cycles. Pandemic supply chain issues have not fully normalized, and global demand has risen in the meantime. Many of these components are sourced from overseas, meaning tariffs could pose additional challenges, likely resulting in higher costs.

Rising insurance costs
The proliferation of wildfires—especially in the western states—has turned a spotlight on electric utility fire mitigation plans. Similar to homeowners insurance in wildfire-prone areas, utility insurance costs are rising dramatically, which will drive costs and impact rate increase discussions.

Meanwhile, New ERA funding remains in limbo as the administration conducts its 90-day evaluation, which should take until mid- to late-April. The USDA has indicated that it is moving forward to lift the freeze on the funding program while also issuing new guidelines for projects and associated investment plans.

Brock Taylor is responsible for the operation of CoBank’s Power, Energy and Utilities banking platform. He joined CoBank in 2006 and has held various roles in both credit and origination across various business lines, including Corporate Agribusiness.

Recent CoBank Capital Markets Activity

Utility

Rayburn County Electric Cooperative

$150M Credit Facility
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Energy Provider

Basin Electric Power Cooperative

$200M Credit Facility
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Hashknife Energy Center, LLC

$945.5M Credit Facilities
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