FarmPolicy

May 24, 2019

Video, Transcript: Chairman Lucas Discusses Issues with Fed Chair Yellen

House Agriculture Committee Chairman Frank Lucas (R., Okla.) discussed issues associated with the agricultural economy with Federal Reserve Chairwoman Janet Yellen on Tuesday during a House Financial Services Committee Hearing.

Related Transcript bellow:

LUCAS: Thank you, Mr. Chair. Chair Yellen, it is a pleasure to be with you today to visit (ph) a little bit about the pressing issues out there.

Sitting on the AG committee and working on the 2012, 2013 and ’14 farm bill now signed into law, there are several things we look at in the committee. And some are directly or indirectly related to the activities of the Fed.

For instance — and not so much an AG-related issue — but the observation from some of my constituents that after the financial problems in 2008, the dramatic downturn in the stock market, and now over the course of the last five years, going from losing half its value basically back to where it was, a little bit on the positive side, not just that, but, for instance, in farm land prices we watched over the course of the last five years a rather dramatic appreciation in the value of farm land.

Now some might say that part of the rebound in the stock market reflected the simple fact that the equities should not have collapsed that far in value five years ago, but — and some would also say that a big part of the takeoff in farm land values reflected the renewable fuel standard, a new government mandate consuming 40 percent of the crop, driving a demand in price responses that hadn’t been there before.

But, in both cases it would seem as an observer — and your opinion of course on this, chair — that once these effects occurred, it would seem that both land prices, and maybe stock market values, have continued on in a trend that would reflect more than the initial effect of either rebounding stock market or the effect of the renewable fuel standard.

In your opinion, how much effect has Quantitative Easing, the effort of course to try and address the housing market and the federal financial obligations, how much of that extra money, that liquidity, has bled over into these other areas?

Is part of the rise in land price values attributable to things like the Quantitative Easing?

YELLEN: So I will not profess to be an expert on land prices.

LUCAS: And nobody is, but you’re exactly right.

YELLEN: I think land prices have been going up at a remarkable rate even before the stock market began to recover, and certainly has caught our attention is an area where we would be concerned about valuations. We’ve been watching that very closely.

LUCAS: But if resources becoming so plentiful at this full spread out into the other parts of the economy, away from housing, if it distorts the decision-making process — I mean, in the farm bill this time we did away with the old direct payment program, basically taking $4 billion a year out of the farm economy in an effort part of which to address that issue, but if all of this money is churning, and once these rates of return that appear to be so dramatically greater than anything else you can invest in — whether it’s farm land or the appreciation of stock — I guess what I’m asking you is one, of course as you noted, the Fed watches all of these things, but when we undo Quantitative Easing, what’s the effect going to be on things like farm land prices or stock market prices for that matter, equities?

YELLEN: Well, I would agree that one of the channels by which monetary policy works is asset prices, and we have been trying to push down interest rates, particularly longer term interest rates. Those rates do matter to the valuation of all assets, both stocks, houses, and land prices, and so I think it’s fair to say that our monetary policy has had an effect of boosting asset prices.

It’s — we have tried to look carefully at whether or not broad classes of asset prices suggest bubble-like activity. I’ve not seen that in stocks generally speaking. Land prices I would say suggest a greater degree of overvaluation.

LUCAS: Because, from the perspective of a number of us, Chair, the concern about the old analogy about the — put your finger in the balloon and it pops out somewhere else are concerns that we would potentially, unintentionally of course, create a bubble similar to what we went through in housing a decade ago, either in farmland prices, or somewhere else. And the consequences of that’s just most unnerving. Your predecessor once, in response to a question from me when I asked, when will you know to undo the quantitative easing? His response was, we’ll know. And my question then was, well if you didn’t know when the problem was coming, how are you going to know when the problem is fixed, to undo? So, I appreciate the challenges you face. I certainly wouldn’t want your job. But then it took us two and a half years to do a farm bill too.

YELLEN: Well, we will watch asset prices very closely and recognize they can be a sign of excesses that are developing.

LUCAS: Thank you chair.

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