We’re going to hear from several Federal Reserve officials this week, including New York Fed President John Williams on Monday, Chicago Fed President Austan Goolsbee on Tuesday and Fed Chair Jay Powell on Wednesday.
A big theme of their presentations, it’s safe to say, will be the direction of interest rates.
Minutes from the Fed’s last meeting suggest that a quarter-point cut is pretty likely at the Fed’s next meeting, Dec. 17 and 18. Beyond that, the Fed says there’s “considerably more uncertainty” about where rates are headed.
That uncertainty has been weighing on the manufacturing industry. One type of manufacturing that’s felt the pinch of high interest rates is the pharmaceutical industry.
“There definitely has been a lull in their pipelines,” said Wayne Woodard, CEO of Argonaut Manufacturing Services in Carlsbad, California, which manufactures drugs and diagnostic tests for other companies.
Woodard said high interest rates have made it harder for his clients to raise the money they need to research and develop drugs.
As a result, “they get forced to deal with a smaller amount of capital to work with, ultimately making very tough decisions about what’s in their pipeline,” Woodard said.
And while the Federal Reserve has begun to cut interest rates, “I don’t really think that people have yet been convinced that Fed policy is going to be continuing in the direction that it is,” Woodard said. “We don’t really know.”
That’s because the Fed could change course if inflation picks up again.
Scott Paul with the Alliance for American Manufacturing agreed that is a concern and said it depends on what the new Donald Trump administration decides to do with the economy.
“Tax cuts, potentially, could put some upward pressure on inflation, depending on how they’re structured,” Paul said. “Tariffs, depending on how they’re structured, can impact prices somewhat or a lot.”
That said, manufacturers surveyed by the Institute for Supply Management last month said they were more concerned with selling products than with interest rates.
ISM’s Tim Fiore runs the survey. “What the business community is saying here is that my order book has gotten so weak that I need orders,” Fiore said. “If there’s no demand, there’s no reason for being.”
Fiore said manufacturers can afford to focus on sales right now because prices are pretty stable.
“If prices become unstable and start to grow, then the Fed’s going to have to do what they’re going to do, and we’ll deal with that when it happens,” Fiore said.
And since any potential tax cuts or tariffs would take time to enact, Fiore said inflation probably won’t pick up until at least the second half of next year.
