The Federal Reserve continued to cut the benchmark interest rate. At today’s Federal Open Market Committee (FOMC) meeting, the 25-basis-point cut lowered the target rate to 4.25%-4.50%. This move signals the Fed’s conviction that inflation is on track toward the 2.0% target and acknowledges credible signs of a cooling labor market.
What Can the Plastics Industry Expect in 2025?
Looking back to December 2023, financial markets interpreted the Federal Reserve’s statement after the FOMC meeting as signaling three rate cuts. While this expectation was fulfilled, the timing and size of the cuts were not predetermined. Predictions that the Fed would reduce rates by 150 basis points did not materialize; today’s rate cut marks a cumulative 100-basis-point reduction this year.
Despite the macroeconomy continuing to expand in 2024, manufacturing and housing experienced another year of slumps due to the high-interest rate environment. For the plastics industry, it appears that an interest rate of 4.0% or higher serves as a “threshold rate,” restricting capital expenditures and new investment projects both upstream and downstream. Plastics production and capacity utilization continued to decline, marked by unsustainable spurts in output.
Jerome Powell, Chairman of the Federal Reserve, reiterated the Fed’s reliance on data-driven decision-making in shaping monetary policy. Despite the adjustments, the long-standing view remains that these rate changes aim to achieve a soft landing for the economy in 2025.
Looking ahead, a lower cost of capital in 2025, coupled with a growing economy—albeit at a more moderate pace—should support growth in the plastics industry. It is reasonable to expect that such an environment will foster a recovery in investment spending and production capacity, providing a more favorable landscape for the sector.
