The Takeaway

Interest rates are already high. But the real question isn't whether they’ll rise one more time this year, but when.

Following the Fed’s September rate hike, markets briefly priced in nearly a 70% chance of another increase in October. That changed when two of the Fed’s vice chairs signaled there's no need for back-to-back hikes and that December is more likely. The chances of an October increase quickly fell to around 20%, rising slightly after a higher-than-expected inflation reading.

There's another reason October looks improbable: The Fed meeting comes just days before the midterm elections. The Fed doesn't play politics, but raising rates so close to an election would be unusual. So, one more hike remains the base case — most likely in December.

Why the patience?

Inflation is up, but the Fed sees it as driven largely by one-off factors — primarily an energy price spike and tariffs — that should ease through time, and inflation will normalize toward its 2% target. It's also reluctant to crush an already uneven economy just to push the number down faster. The job market looks tight but feels softer underneath, and wages aren't climbing as they did in 2022.

For now, the economy is strong — third-quarter growth is tracking well above trend, and consumers keep spending. But much of that spending relies on stock market gains, which continue to defy expectations, and on larger tax refunds from the One Big Beautiful Bill Act. However, if equities stumble, the picture could change quickly.

U.S. interest rates have climbed to their highest levels since late 2001. Several forces are behind the rise: strong economic data, oil prices pushed higher by the U.S.-Iran conflict, ongoing worries about federal deficits and a massive wave of borrowing to fund the AI data center buildout.

Inflation expectations remain fairly steady, suggesting this is not primarily about fears of runaway prices. Instead, it reflects a strong economy and the possibility that the Fed will keep rates elevated for a while. The trend is global, with yields rising in Europe and Japan as well.

Against this backdrop, clients are split — and their conviction gap is wider than we've seen in years. One camp is on the sidelines, betting that today's rates are unsustainable and will drift back toward post-financial crisis lows. The other sees the higher-for-longer rate environment as structural rather than cyclical — fiscal deficits, the AI debt supercycle and the Fed's normalization — and is acting with real urgency to pay fixed rates on interest rate swaps.

This divergence, more than rate levels alone, is the real story right now.

Capital markets keep chugging along, but the real headline is hard to miss.

The 10-year Treasury recently moved above 5.3% — its highest level since December 2001, when it closed above 5.4% — before settling back into the 5.1% range. But we’re not alone — government borrowing rates are climbing worldwide.

Conventional wisdom would blame AI data center spending. But in France — which spends far less on data centers than the U.S. relative to the size of its economy — yields are rising too. And here, inflation remains well above the 2% target, government spending is heavy, diesel prices are elevated and growth is robust.

Bottom line: Investors want more return to hold fixed-rate debt.

That has created a gap. SOFR has sat near 3.9% since about mid-September, while Treasuries run 5% or higher. That spread makes floating-rate loans look more attractive than bonds, so borrowers are pausing on fixed rates and delaying refinancings.

Rural and agricultural borrowers on floating-rate debt felt the Fed's recent 25-basis-point hike immediately, since SOFR tracks it one for one. But lender spreads should remain stable. With more Fed hikes priced in, some borrowers may decide to come to market now, before rates climb further.

The secondary loan market has a simple theme of late: There's no escaping volatility. Loan prices climbed through September, supported by strength in the software and healthcare technology sectors. But they slipped late in the month as equities dipped, then rallied again into October. Overall, third-quarter volume held up well.

The market remains bifurcated, split between the haves and the have-nots. Investors continue their laser focus on which industries have tailwinds and which face headwinds.

A Fed rate hike in the coming months would sharpen that divide. Strong, in-favor borrowers would likely see prices tick higher, while overleveraged names — the B-minus and triple-C credits — could fall materially. Rate-sensitive sectors such as building products may feel the squeeze, too.

Either way, the gap between the haves and have-nots only widens.

If there’s one theme to this harvest, it’s that surprises abound. Some growers are seeing better yields than expected, while others are coming up short. Meanwhile, the USDA has thrown a couple of curveballs.

Recently, corn carryout approached the critical 10% level, where prices can turn volatile. In September, USDA’s crop report added roughly 534 million more bushels to last year’s crop. The October report piled on, raising estimates for the national yield average by 2.7 bushels/acre, adding another 234 million bushels to production despite deteriorating crop conditions. That nearly 800-million-bushel swing has taken the wind out of the corn market’s sails.

Meanwhile, input costs aren’t helping. Fertilizer’s premium carries into the fall, and diesel prices keep stinging. Filling a 250-gallon combine costs about $1,400 every other day throughout harvest. Ag businesses running daily trucks can’t pass that cost along, and their margins aren’t keeping up. Farmers know the (unfortunate) drill: Buy at retail, sell at wholesale and pay the freight both ways.

So tough-time advice still rings true. Tune out the noise, which abounds. Control what you can control and build enough buffer to see another day or the next surprise that breaks your way.

Rural broadband providers have more company than ever. Satellite, fixed wireless and fiber overbuilders are all chasing the same customers, and the pressure isn’t letting up.

Starlink is the big story. Once written off as too pricey and too slow, it’s grown from 2.3 million subscribers in 2023 to 12 million in mid-2026, with revenue nearly tripling to $11.4 billion last year. And another powerful new entrant, Amazon Leo, is expected to launch fully next year, possibly bundled with Prime.

Fixed wireless is surging too. T-Mobile has 8.5 million customers and is aiming for 15 million by 2030. Verizon has 5.7 million, and AT&T has jumped from almost none to about 2 million, with carriers often bundling home internet into phone plans.

So, what can a smaller provider do? Lean on what the national players can’t replicate: a local brand, genuine customer service and community ties. You may get outspent, but you don’t have to get outdone.

Read the full report.

The AI boom has to plug in somewhere — and from statehouses to utility commissions, officials are scrambling to write rules for their jurisdictions before it does. But no single template yet exists, so improvising is the name of the game.

In CoBank’s home state, Colorado, Xcel Energy estimates that new large-load customers could need more than 1,900 megawatts of additional power by 2031 — a 31% increase. However, for three consecutive years, state lawmakers have failed to agree on a framework, so Denver and other cities have imposed data center moratoriums while regulators draft rules.

Other states are further along, and their approaches differ. Ohio regulators approved a 2025 tariff requiring new large data centers to pay for at least 85% of the power they reserve — even if they use less — under 12-year contracts with exit fees. Once those financial commitments took effect, a wave of speculative projects quietly dropped out of the queue.

In Virginia, the nation's current data-center capital, a legislative study found that the centers currently cover their own costs — but highlighted that, under one scenario, a typical Dominion Energy household could see bills climb by more than $20 a month by 2030 as demand increases.

What then? Many questions remain unanswered.

For deeper insight into the challenges of rate pricing in the evolving large-load environment, read the report The state of large load rate design: Insights from the DELTa database by Teri Viswanath, lead economist, Power and Energy at CoBank.

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