Go figure: Continuing volatility and uncertainty beget a surprisingly resilient economy

August 12, 2025

Oh, what a summer it’s been! The economy remains surprisingly resilient—thank you, U.S. consumer!—and unemployment remains low, despite some recent signs of weakness. Commercial banks are optimistic, a sentiment they haven’t held for some time now. As we continue to careen through a very active 2025, only time will tell if economic conditions remain favorable. Cautious optimism seems to be the prevailing outlook.

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Interest rates

Still no rate cut; Fed says “wait and see”

Jeff Milheiser

Following the Federal Reserve’s July 30 decision to keep its benchmark federal funds rate in the 4.25% to 4.5% range, the economic outlook remains cautiously optimistic but with some uncertainties, especially around the effects of President Trump’s tariff policy.

The decision to hold rates steady for a fifth consecutive meeting signals that the Fed is not yet convinced the time is right for easing, despite two dissenting votes and calls from some officials for aggressive cuts.

This steady stance reflects the Fed’s commitment to balancing inflation with labor market stability. Inflation remains above the Fed’s 2% target, prompting the Board to adopt a “modestly restrictive” approach to monetary policy.

Labor Department numbers released after the Fed meeting indicate a slowdown in job growth, with a significantly lower increase in July and downward revisions to the two previous months’ data. This trend, coupled with persistent inflationary pressures—some stemming from new tariffs—has led the Fed to adopt a wait-and-see posture. 

Looking ahead, the Fed’s upcoming meetings in September, October and December will be key moments for possible policy changes. More jobs and inflation data are due before the September meeting, which the Fed will watch closely before making any moves. 

Then there’s the market’s take. 

Whereas futures markets had reduced expectations for a rate cut in September immediately following the Fed announcement, those expectations were reversed after the subpar jobs report just days later.

Meanwhile, elevated interest rates mean continued pressure on borrowing costs—from mortgages to credit cards—while savers may benefit from higher returns. However, if economic growth continues to moderate and labor market conditions weaken further, the Fed may be compelled to act sooner than anticipated to support the economy.

The message is clear: The Fed is prepared to respond, but only when the data justifies it.

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

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Derivatives

Hedging activity up: Rate collars out, swaps in

Eric Nickerson

A surge in market volatility—triggered by political ambiguity, the Fed’s interest rate decision and shifting global trade relations—has prompted a noticeable uptick in customer hedging activity. 

Steep market rate declines following the release of significantly lower employment numbers in early August sparked a flurry of activity that spilled into the following week. Defining that activity was a renewed interest in locking in current rate levels, especially among borrowers who fear rate cuts may not materialize.

Historically, uncertainty about the path of short-term rates has driven a shift toward options-based hedging strategies, such as interest rate collars. Although customer interest in collars has softened recently, current market dynamics may suggest a possible resurgence. Still, many customers have opted for swaps—favoring predictability over flexibility—given the pricing dynamics of options under heightened volatility. 

If the Fed moves to cut rates or the yield curve rises, the appetite for range-bound instruments like collars could rebound, underscoring how strategy selection hinges on real-time rate movements and individualized risk profiles.

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

Commercial banks are in a good mood; will it continue?

Kiran Kini

With the nonstop headlines, ongoing policy changes, wars, etc., it sometimes feels like the world is on fire. The broader U.S. economy, however, doesn’t seem to be feeling the heat.

For the most part, markets are looking through the noise. Whether it’s foresight, fatigue or complacency, only time will tell. But for now, the markets continue to be cautiously optimistic about the U.S. economy. 
 
As we traverse bank earnings season, the overall sentiment is optimistic, especially regarding the U.S. consumer. Comments from banks’ earnings calls indicate that the widely expected consumer spending slowdown has not yet appeared. 

The weak employment report in early August brought some concerns about the labor market and consumption back to the forefront and increased the likelihood of rate cuts by the Federal Reserve at the September Federal Open Market Committee meeting. 

Amazon’s Prime Day (can we still call it Prime Day when it spans four days?) saw a 28% increase in sales from 2024 (which lasted two days), indicating that U.S. consumers still can’t resist a bargain.

And banks are eagerly anticipating President Trump’s deregulatory agenda coming from Executive Order 14192, his “Unleashing Prosperity Through Deregulation” initiative. EO 14192 is not bank specific, but it sets the stage for what are expected to be less restrictive capital and liquidity requirements, as well as streamlining anti-money laundering rules and limiting the enforcement power of the Consumer Financial Protection Bureau. 

There are plenty of reasons for optimism, but the primary underlying issues—tariffs, employment levels and interest rates—continue to make noise. It remains to be seen how long banks’ optimism will last. 

Kiran Kini is CoBank’s senior vice president and treasurer. Kiran joined CoBank in 2019 after more than 21 years at Fannie Mae in Washington, D.C.

Market Focus

Agribusiness

Grain prices remain frustratingly low; expectations for the ’25 crop are sky high

Marcus Wilhelm

Aside from some brief spikes following the news of certain trade deals, downward pressure continues to define the environment for corn prices. 

Corn has steadily declined by about 70 cents per bushel since the beginning of 2025. Uncertainty and market volatility caused by trade disputes and geopolitical tensions are the primary culprits.

Yet the threat of tariffs has accelerated corn exports, with some countries trying to obtain low-priced corn while it’s still available. These exports are helping U.S. farmers move more product in anticipation of a very strong 2025 harvest. 

The 2025 corn crop is currently projected to be the second largest since 2016, which came in at 104% of the trend line yield. At this point, the 2025 trend line is slightly below the 2016 level, providing optimism for farmers to potentially “bushel” their way through to smaller losses or, possibly, breakeven.

Also, global corn and wheat supply levels are relatively tight, which, combined with a weaker U.S. dollar, could help facilitate even stronger export demand.

Meanwhile, the anticipated bumper crop could bode well for co-ops, which should have good drying and storage revenue opportunities, more importantly, strong volume. Even if margins still aren’t great, higher volume could propel some earnings into the next fiscal year.

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, Nebraska.

Recent CoBank Capital Markets Activity

Packaging Corporation of America

Packaging Corporation of America

$500M Credit Facility
Administrative Agent, Syndication Agent & Joint Leader Arranger

Tyson Foods, Inc.

Tyson Foods, Inc.

$2.5B Credit Facility
Joint Lead Arranger, Joint Bookrunner & Documentation Agent

New Cooperative, Inc.

New Cooperative, Inc.

$350M Credit Facility
Administrative Agent & Lead Arranger

Digital Infrastructure

Tax changes light a fuse on fiber network deployment

Jeff Johnston

Tax policy reforms from the One Big Beautiful Bill Act are expected to trigger an increase in broadband deployment across the country, especially in rural regions.

The Act, signed into law on July 4, permanently reinstates 100% bonus depreciation for qualifying assets placed in service after January 19, 2025.

The change means that fiber operators can deduct the entire cost of eligible fiber network infrastructure in the year it is placed into service rather than depreciating those assets over 10 years. The net result is a much quicker decrease in taxable income, which frees up cash that can be reinvested in network deployment.

Fiber leader AT&T wasted no time by announcing on July 3 its intention to increase its network investment by an additional 1 million fiber customer locations annually starting in 2026.

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

$2.25B Credit Facilities
Coordinating Lead Arranger

WH i3 Bidco, LLC

WH i3 Bidco, LLC

$500M Credit Facilities
Administrative Agent & Lead Arranger

United States Cellular Corporation

United States Cellular Corporation

$800M Credit Facility
Administrative Agent, Lead Arranger & Sole Bookrunner

Power & Energy

Skyrocketing demand poses serious challenges for utilities, including rural electric co-ops

Brock Taylor

With the opening of its first store in 1971, Starbucks began to transform the coffee industry. Over the next two decades, what had been a 50-cent to $1 cuppa joe would become a $3 to $6 handmade espresso indulgence.

Certainly, the business of generating and distributing electricity isn’t going the way of Starbucks…except maybe in one critically important way: price.

Driven by the proliferation of massive AI and cloud computing data centers and electrification of buildings and transportation, along with industrial growth and manufacturing, the massive demand increase is causing energy prices to rise well above inflation levels as the aging electrical grid struggles to keep up.

CoBank’s hometown (Denver) energy provider, Xcel Energy, recently took questions from the Colorado Public Utilities Commission about a forecast that, per The Denver Post, would increase residential rates by about 50% in 2031, compared to 2024 rates, while commercial and industrial rates remained flat.

The challenges facing rural electric cooperatives (RECs) could become even more severe. Given the economic challenges of providing service in sparsely populated areas at higher costs than urban areas, and in some cases a higher level of aging infrastructure and increasingly complex regulatory compliance, co-op executives and boards will have to be agile and decisive. 

Over the next few issues of The Takeaway, we’ll delve further into the unique issues facing RECs. Meanwhile, CoBank stands ready to help its REC customers navigate this changing environment.

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

High Plains Carbon Financing, LLC

High Plains Carbon Financing, LLC

$1.07B Credit Facilities
Coordinating Lead Arranger

Tri-State Generation and Transmission Association, Inc.

Tri-State Generation and Transmission Association, Inc.

$250M Green Credit Facility
Lead Arranger and Syndication Agent

Copia Power

Copia Power

$1.7B Credit Facilities
Joint Lead Arranger

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