This afternoon, after a two-day meeting, U.S. Federal Reserve Chair Janet Yellen announced the Federal Open Market Committee (FOMC) will not raise interest rates.
Manufacturers continue to feel anxiety in the face of headwinds like the strong dollar and weaker growth in key international markets, with production down in three of the past four months. In our associations’ latest economic outlook survey, manufacturers indicated a preference for the Federal Open Market Committee to wait until these headwinds die down a bit before beginning the process of raising short-term interest rates.
The Federal Reserve has said that it is data-dependent, and while there is positive data out there, it’s clear more time is needed to evaluate incoming data in order to ensure sufficient progress.
The global economic climate continues to pose challenges to manufacturers. A recent poll by the National Association of Manufacturers (NAM), found close to 80 percent of manufacturers continue to cite an unfavorable business climate as the top business challenge, and roughly 64 percent believe there are still sufficient weaknesses in the U.S. economy, and, as such, the Federal Reserve should wait until the beginning of the year to raise interest rates. The survey and a full analysis is available here.
With that said, all eyes will now turn to the December 15–16 meeting of the FOMC. Conventional wisdom continues to hold that short-term rates will increase by year’s end, with the December meeting being the most likely option. The other possibility would be the October 27–28 meeting, but that seems less likely.
Either way, this is the beginning of a process. While it didn’t start this time around, it’s more than likely that we’ll see an increase in December, when we’ll likely see at least three increases spread out over even intervals throughout 2016. If that’s the case, it would make the most sense for these increases would be 25 basis points each, so by the end of 2016, the Fed will have raised rates a full percentage point.
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