US growth slowdown may delay second Federal Reserve interest rate hike

Chris Papadopoullos
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The Federal Reserve Board Building
The Federal Reserve is widely expected to lift interest rates from record lows this week (Source: Getty)

The US economy is contracting this month, according to a survey of businesses, and is likely to prevent the Federal Reserve from raising interest rates quickly next year.

The sales managers’ index published today by World Economics dropped to a score of 48.9 for December from 52.4 in November. Any score below 50 indicates a contraction in business activity.

The last time the SMI dropped below 50, the US economy contracted at an annualised rate – the amount it would grow at if the current pace was continued for a year – of 0.9 per cent. The SMI points to an annualised growth rate of 0.7 per cent in the final three months of the year, marking a slowdown from an annualised growth rate of 2.1 per cent the three months to September.

With the US central bank widely expected to lift interest rates for the first time in nine years this week, it may mean a delay to their second rate hike.

“The December SMI Index for the US economy indicates a contraction in December sales which will result in a sharp slowdown in the growth of the US economy,” said World Economics chief executive Ed Jones.

“The slowdown in activity has led to lower levels of business confidence and a near absence of inflationary pressures suggests that if the Federal Reserve does raise rates in December the move towards normalisation should be minimal.”

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