U.S. Manufacturing Flatlines in November, Fueling Fed Rate Cut Bets
US manufacturing production was unexpectedly flat at 0.0% in November, according to the Federal Reserve. Here's how high interest rates are impacting the economy and what it means for Fed policy.
America's factory output stalled in November, a clear signal that the 's high interest rates are squeezing the economy. The Fed reported that manufacturing production was unchanged at last month, falling short of economists' expectations and raising questions about the economy's resilience heading into the new year.
The flat reading disappointed analysts, who, according to a Reuters poll, had forecast a modest gain. A key drag on the sector came from motor vehicles and parts, where output dipped by .
The weakness wasn't confined to factories. The broader measure of industrial production, which includes mining and utilities, fell by , marking its second consecutive monthly decline. While a sharp drop in utilities output due to milder-than-usual weather was a major factor, the overall trend points to a cooling economy. Capacity utilization, a measure of how fully firms are using their resources, edged down from to .
The culprit behind the slowdown is the 's aggressive rate-hiking campaign. Higher borrowing costs are making businesses think twice about expanding and consumers hesitant to purchase big-ticket items like cars and appliances. This waning demand is now directly hitting production lines.
For your portfolio, this data is a double-edged sword. On one hand, it strengthens the case for the to begin cutting interest rates in 2026. Markets are increasingly pricing in rate cuts as evidence of an economic slowdown mounts. On the other hand, it also increases the risk of a hard landing, where the economy contracts more sharply than desired.
This is the kind of 'bad news is good news' data the market has been watching for. However, it puts the Fed in a tight spot. Cut rates too early, and they risk inflation flaring up again. Wait too long, and they could steer the economy into a recession. Upcoming jobs and consumer spending reports will be critical in tipping the scales.
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