Fed Raises Rates and Manufacturing Growth Slows in the Midwest

​Last Tuesday and Wednesday, the Federal Open Market Committee held their December meeting. The board elected to raise rates for the fourth time this year, although the median governor is anticipating one less rate hike in 2019. The Commerce Department made downward revisions to its third quarter GDP estimates, knocking a tenth of a percent off its previous estimates. Lastly, the Kansas City Federal Reserve released its December Manufacturing Survey and Index, showing a slowdown in manufacturing activity during the month due to declines in production, shipments and new orders for exports.

• At the December Federal Open Market Committee (FOMC) meeting last Wednesday, the board of governors unanimously elected to raise the Federal funds rate for the fourth time this year. The benchmark rate was lifted 25 basis points, to a new range of 2.25% to 2.5%. The board cited a tightening labor market and strong economic demand. However, the board did note that business investment has slowed throughout the year, due to rising interest rates and a break in the tax-cut windfall. The news release also reveals the median FOMC board member as calling for two 2019 rate hikes, down from three following the September meeting.

• The Commerce Department released revisions for its third-quarter GDP estimates, bumping the figure down to a 3.4% annual growth rate from the previous estimate of 3.5%. The figure still maintains well above the economy’s so-called “growth potential,” which is currently estimated around 2%. The markdown comes as a result of downward revisions to the consumer spending and exports categories, as well as inventory accumulation. Economic growth in 2018 has been given a surge thanks to the tax cut’s effect on consumer spending. However, growth has slowed through the end of the year as the trade deficit widens and the housing market softens.

• The Kansas City Fed released its December Manufacturing Survey last week, revealing a drop in manufacturing production growth in the Great Plains. The composite manufacturing index fell to 3 points in December from 15 in November and 8 in October. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indices. A reading of 0 measures a neutral growth rate. The slowdown in manufacturing activity was due to declines in production, shipments and new orders for exports, which fell to –18, -3, and –7, respectively. Three component indexes climbed higher in the month: the number of workers and the finished goods and materials inventories indices.