Could The Fed's Interest-Rate Cutting Be Over?

ByJohn S. McClenahen The Federal Open Market Committee, the U.S. Federal Reserve System's panel that sets short-term interest rates, is still widely expected to lower the influential federal funds rate to 1.5% when it meets at month's end. However, in the wake of the latest report on manufacturing activity from the Institute for Supply Management (ISM), Maury Harris, chief U.S. economist at UBS Warburg LLC, New York, says his confidence in another rate cut has been dented "a bit." The ISM manufacturing index for December was 48.2, stronger than the consensus forecast of 46. An index figure below 50 indicates manufacturing activity is contracting; above 50, it signifies expansion. "While the manufacturing sector continues to decline, the rate of decline has slowed very quickly, giving some hope that recovery may come faster than is generally found in a major downturn," observes Norbert J. Ore, chair of ISM's manufacturing business survey committee and group director of strategic sourcing and procurement at Georgia-Pacific Corp. Significantly, ISM index figures for both new orders and production were above 50 in December, and the trend for most of the other ISM indexes is "definitely in the right direction," says Ore. Based in Tempe, Ariz., ISM was formerly known as the National Association of Purchasing Management.