US Fed’s High-Interest Rate Dramatically Reduces Productivity in Factories Nationwide

By Yehudit Garmaise

The US Federal Reserve spiked the country’s interest rate last year to bring down inflation, but the Fed has inadvertently slowed factory productivity nationwide.

The Fed raises borrowing costs to slow down spending and cool down the economy, but just like regular consumers, factories often purchase raw materials on credit, Reuters reports.

Another factor causing factory orders to slump is that Americans are spending more these days on services than goods.

The increased cost of raw materials has also contributed to a national slowdown in factory production since November 2022, according to a survey the New York Federal Reserve released today.

In addition, demand for American products has also decreased around the globe, which usually accounts for an 11.3%  contribution to the US economy.

"A variety of manufacturing surveys have been weak across recent months, and the Empire State survey suggests that this weakness continued, or perhaps intensified, early this year," said Daniel Silver, an economist at JPMorgan in New York.

With orders for manufactured goods dwindling, employment growth in New York fell to its lowest level in two years. In addition, factories reduced hours for workers.

However, within the next six months, New York manufacturers expect to see modest improvements as inflation pressure is likely to decrease, allowing the Feds to scale back interest rate hikes.

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