With borrowers expecting bigger, quicker rate cuts, Fed chair says, 'Hold up!’

November 10, 2025

It’s happened before—and not that long ago—when borrowers’ and interest rate traders’ expectations exceeded those of the Federal Reserve. Now, after two consecutive rate cuts, the market expected more, only for the Fed to shoot down those expectations. Disagreement within the Fed adds to the uncertainty, which is the characteristic that is currently shaping the market and the broader economic environment.

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Interest rates

Fed Chair Powell: “What do you do when you’re driving in the fog? You slow down.”

Jeff Milheiser

The interest rate futures market recalibrated sharply following Fed Chairman Jerome Powell’s Oct. 29 news conference to explain the decision to cut the fed funds rate by a quarter percentage point to a range of 3.75 and 4%.

Just days earlier, traders had priced in a 100% certainty that the Fed would cut rates again in December. However, Powell’s remarks sparked uncertainty, bringing the probability down to just under 73%—still a strong likelihood according to the market, but a significant drop.

Powell emphasized that a December rate cut is “not a foregone conclusion,” citing differing opinions within the Federal Open Market Committee. Notably, the October decision included rare dissent from both sides of the debate. One member opposed any cut, while another supported a half-percentage-point reduction.

The Fed’s cautious stance stems from mixed economic signals, as well as disruptions to data caused by the government shutdown. While unemployment remains low, signs of labor market softening prompted the October cut. However, Powell stressed that future moves hinge on inflation trends, which remain clouded by the unpredictable impact of tariffs. The Fed maintains its commitment to a 2% inflation target but acknowledges the difficulty in forecasting tariff-related price pressures.

Without a clear view of the economy’s path, market volatility could rise in the upcoming months, which Powell likened to driving through fog. As investors await the December 10 meeting, the Fed’s balancing act between employment concerns and inflation risks will continue to shape expectations.

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

Sideline strategy: Uncertainty and slower-than-expected rate cuts stymie some borrowers

Eric Nickerson

The pace of the Fed’s interest rate reductions has fallen short of earlier expectations, frustrating many borrowers who have waited to hedge or opted not to hedge. The increasingly uncertain path of rates has resulted in many borrowers staying on the sidelines, waiting for more definite signals before committing.

Since the previously anticipated aggressive easing has failed to materialize, borrowers waiting to hedge are becoming more strategic by picking specific entry points during volatile rate swings. 

Hedging instruments such as interest rate collars continue to gain popularity by providing range-bound protection while maintaining benefit if rates fall. These instruments attract customers seeking a mix of security and flexibility, gaining some benefit from future rate cuts and avoiding full exposure to rising rates.

As volatility continues, the challenge for borrowers is not only managing exposure to rates but also managing ever-changing market conditions. The market may be unpredictable, but a strategic approach to hedging can provide some stability in an otherwise uncertain environment.

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

Loan market shifts: Owens-Illinois refinance reshapes pricing; treasuries see outflows and middle market loans rally

Craig Smith (primary market) and Todd Helman (secondary market)

The commercial loan market has seen notable developments across both the primary issuance and secondary trading markets. 

On the primary issuance side—as an example of how bond market opportunities and other factors are influencing loan pricing— Wells Fargo led a $2.7 billion loan refinancing for Owens-Illinois. Wells Fargo cut pricing by removing the SOFR credit spread adjustment, which worked for many commercial lenders because of the prospect of opportunities to participate in refinancings of its $4 billion bond and loan complex. The lower pricing did not work for other banks, leading the company to move $650 million to the institutional Term Loan B market, which had higher loan margins but benefitted from a longer tenor and no financial covenants. 

The credit markets saw $7.8 billion in Treasury outflows for the week ending October 1, while investment-grade bonds, high yield, U.S. loans, and mortgage credit continued to attract investor capital. Money market funds saw over $50 billion in inflows as corporate treasurers sought yield ahead of reduced rates. Loan pricing remained stable, with B+ rated loans tightening to SOFR +314 and middle market loans rallying in price from 93.3 to 98.9, signaling a strong “loan pickers market.”

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.

Todd Helman is a lead relationship manager for Loan Sales and Facilitation in CoBank’s Capital Markets group. Todd joined CoBank in 2023 from Waveson Capital. He also held positions at Huntington National Bank, BBVA USA and S&P Global Ratings. 

Market Focus

Agribusiness

U.S. farmers face cautious optimism as grain yields rise, China resumes soybean purchases. Is federal aid on the way?

Marcus Wilhelm

Despite a tough year, U.S. grain producers are ending 2025 with higher yields and renewed optimism. Corn and wheat exports are picking up thanks to lower freight costs and a weaker dollar, but soybean farmers have faced difficulties due to stalled Chinese demand. 

That tide may be turning. China has agreed to buy 12 million metric tons of U.S. soybeans this year and 25 million annually through 2028, signaling a possible rebound for the soybean market.

Still, achieving profitability remains difficult. Many farmers are “busheling” their way toward break-even, which feels like a win. And grain companies are benefiting from market carry, but volatility threatens their margins. 

Potential federal subsidies—rumored to be about $13 billion—could provide relief, but inflation and the government shutdown could mitigate their impact. Compared to the $40 billion aid package in President Trump’s first term, that level of support is unlikely to go as far.

Bright spots in livestock and biofuels offer balance to the pressures in the grain market. As global markets reset, farmers must stay nimble, managing risk and watching policy developments closely. Resilience and adaptation remain key to survival.

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.

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Digital Infrastructure

Rural America’s AI gold rush hinges on power

Jeff Johnston

As AI infrastructure investment surges—Microsoft alone projects $120 billion in annual capital spending for 2026—rural America stands at the epicenter of a digital gold rush. Hyper-scalers are flocking to remote regions for land and lower costs, promising economic renewal through the construction of data centers.

It all sounds great, but there’s a catch: power.

Former Google CEO Eric Schmidt warned that the U.S. must add 92 gigawatts of electricity by 2030 to meet AI demand. Without it, rural communities risk losing their competitive edge, and AI training could shift overseas. China, already outpacing the U.S. in energy expansion, added 625 GW of renewable capacity in just 18 months, dwarfing America’s 62.8 GW in 2024.

The stakes are high. If rural America can mobilize energy infrastructure fast enough, it could become the backbone of the AI revolution. If not, the opportunity—and the jobs—may vanish across borders.

The race isn’t just for AI dominance—it’s also for power.

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.

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Power & Energy

DOE initiatives support rural electric cooperatives amid grid strain

Brock Taylor

The Department of Energy recently announced two important initiatives aimed at strengthening America’s electric grid—measures that could provide an essential boost for rural electric cooperatives. 

The “Speed to Power” initiative addresses the slow pace of transmission development, warning that without quick action, power blackouts could increase 100-fold by 2030. With only 888 miles of high-voltage transmission added in 2024—well below the 5,000 miles needed annually—co-ops face growing pressure to meet rising demand from AI data centers and industrial electrification.

At the same time, the DOE announced a $625 million investment to retrofit and recommission coal-fired power plants, with a focus on rural reliability and dispatchable generation. Electric cooperatives, which own or co-own 79 coal units totaling 21 GW, may benefit directly—especially as 3 GW of co-op coal capacity approaches retirement. The funding supports modernization, dual-fuel retrofits, and wastewater upgrades, providing co-ops with operational flexibility and longer plant lifespans. 

These federal efforts together highlight important progress for rural energy providers facing rapid load growth and grid uncertainty.

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, Electric Distribution and Power Supply.

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