Monday Economic Report: The Federal Reserve Signals 50-Basis-Point Hike at May Meeting

AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM).

By Chad Moutray, Ph.D., CBE – April 11, 2022

NAM Weekly Economic Toplines

In the minutes to the Federal Open Market Committee’s March 15–16 meeting, participants were determined to deal with inflation in the U.S. economy. While many members were prepared to increase the federal funds rate by 50 basis points at that meeting, the Russian invasion in Ukraine posed new uncertainties to the outlook, with the FOMC eventually opting to increase rates by just 25 basis points, now ranging from 25 to 50 basis points. Nonetheless, the Federal Reserve seemed positioned to do more at an upcoming meeting, including the next one on May 3–4. From the minutes: “Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.” Recent speeches from Chair Pro Tempore Jerome H. Powell and Gov. Lael Brainard (who is awaiting confirmation as vice chair), as well as the FOMC’s economic projections, lend further credence to a 50-basis-point hike at the May meeting, with aggressive increases also coming later this year. Those projections predict a federal funds target of 175 to 200 basis points at year’s end. Bond markets have taken note, with yields soaring last week. For a sign of the real impact of this on everyday Americans, the average 30-year fixed-rate mortgage for the week of March 31 was 4.67%, according to Freddie Mac, the highest since the week of Dec. 6, 2018. These rates are likely to move even higher over the coming weeks. Meanwhile, new orders for manufactured goods pulled back 0.5% from a record $544.7 billion in January to $542.0 billion in February. These data were pulled lower by declines in sales for motor vehicles and nondefense aircraft. Excluding transportation equipment, manufacturing orders rose 0.4% to a record $459.2 billion in February. Despite lingering supply chain, workforce and pricing pressures, the manufacturing sector has proved quite resilient over the past year. New factory orders have soared 12.6% year-over-year, or 13.4% with transportation equipment excluded. Factory shipments increased 0.6% to $541.0 billion in February, an all-time high. On a year-to-date basis, factory shipments have risen 13.7%, a very strong figure. The U.S. trade deficit inched down from a record $89.23 billion in January to $89.19 billion in February. The data continue to be skewed by supply chain disruptions, the chip shortage and higher costs for petroleum. The goods trade deficit pulled back from an all-time high, down from $108.60 billion to $107.47 billion. Goods imports have jumped to new heights, rising from $264.59 billion to $266.25 billion, with growth in imports outpacing the gain in goods exports, which increased from $155.98 billion to $158.78 billion. Goods exports were just shy of October’s record high ($159.02 billion). Lastly, the week ending April 2 saw 166,000 initial unemployment claims, the lowest level since the week ending Nov. 30, 1968. READ FULL REPORT