(NDAgConnection.com) – The Federal Reserve is finding it harder to cool the economy than almost anyone expected. Most corners of the U.S. economy are performing very well considering the Fed has been aggressively raising rates for seven months. Manufacturing continues to expand, consumer spending remains strong, the labor market is still extremely tight and Q3 GDP data will likely show solid growth.

While the rate increases have done little to cool spending and tamp down inflation, critics are increasing their calls for the Fed to stop raising rates. The argument is that further monetary tightening will have catastrophic effects on the U.S. and global economies, and that inflation is about to fall precipitously.

According to a new Quarterly report from CoBank’s Knowledge Exchange, the Fed does not see it that way, nor should it.

“To date, there is no solid evidence that inflation is on a steep downward path and there is also little evidence that higher rates are severely damaging the economy,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange.

“Ultimately, to get inflation levels down, the willingness or ability of consumers and businesses to spend must also come down. That means rate hikes will continue until the Fed achieves its mandate of price stability. Unfortunately, that increases the likelihood of collateral damage coming in the first half of 2023.”

There are signs of slowing, however, which are the first cracks to form from monetary tightening, noted Kowalski. Consumer credit is on the rise while savings rates are falling. And wage growth is falling even as inflation remains high, reducing consumer purchasing power.

In contrast, the energy and agri-food sectors have gained unexpected levels of pricing power as supply shortages now appear to be medium-term challenges. Risks and uncertainty remain exceptionally high, but elevated commodity prices also offer opportunities.

Grain prices remained volatile throughout the third quarter, finishing mostly higher. U.S. corn and wheat futures rose 11% and 8%, respectively, partly offset by a 2% drop in soybeans. On farm grain storage is above 2021 levels for the three major crops, potentially signaling a stronger harvest-time basis this year.

Corn and soybean exports for the new crop marketing year are up 13% over last year. However, grain transport expenses could remain higher as low water levels on the Mississippi River caused a spike in barge rates. And Russia is now indicating it may not extend its agreement to allow Ukrainian grain exports via the Black Sea, which would send grain prices upward.

Despite a slow start to the spring planting season, ag retailers successfully managed crop input inventories and had a very good summer agronomy season. Domestic fertilizer prices fell by 5%-16% in Q3 amid a massive correction in energy prices. However, prices have been rising as harvest gets underway and farmers shift their attention to fall application season. Russia’s war with Ukraine continues to impact global supplies and prices for nitrogen, phosphorous and potassium fertilizers.