December 18, 2007—The FOMC lowered the federal funds rate 25 base points to 4.25% as uncertainty over future economic growth continued. Overall prices for consumer goods surged 0.8% in November while the core CPI increased 0.3%. Concurrently, producer prices grew 3.2% as the core PPI posted a 0.4% increase. Retail sales and industrial production both increased, posting gains of 1.2% and 0.3%, respectively.

Federal Open Market Committee Meeting
The FOMC lowered the federal funds rate 25 basis points to 4.25%. The committee said that "incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending." Decreasing the federal funds was in response to growing doubt about future economic growth, as the FOMC noted "recent developments, including the deterioration in the financial market conditions, have increased the uncertainty surrounding the outlook for economic grown and inflation."

Consumer Price Index
The consumer price index rose 0.8% in November, the highest increase in more than two years. The increase was caused by a 5.7% surge in energy prices. The core CPI—which excludes food and energy prices—inched up 0.3% for the month. On a year-ago basis, the top-line CPI has increased 4.3% while the core CPI is up 2.3%. Given that economic growth is well below potential, inflation should slow in the near term.

Producer Price Index
Producer prices for finished goods rose 3.2% in November, the second highest reading in the index's history. A 14.1% jump in energy prices drove the increase. Core prices—which exclude food and energy prices—increased 0.4% for the month, a large increase from recent months. Compared to a year ago, the overall PPI has risen 7.7%. The rise in the PPI should not cause concern, as energy prices have stabilized and appear to be alleviating pressure at early stages of the supply chain.

Retail Sales
Total retail sales rose 1.2% in November, greatly outpacing the increase of 0.2% in October. The overall increase was led by strong gains at gas stations, but core retail sales—which exclude gas and auto sales—posted a surprising increase of 1.1% for the month. On a year-ago basis, top-line retail sales have increased 6.3% and core sales are up 7.4%. We expect continued modest growth in retail sales going forward.

Industrial Production
Industrial production increased 0.3% in November following the downwardly revised 0.7% decrease in October. Manufacturing output rebounded 0.4% while mining posted a gain of 1.1%. Utilities output was also weak, plunging 1.3% for the month. Last, capacity utilization rose slightly from a downwardly revised 81.4% to 81.5%. The modest gains in industrial production reflect a better momentum for manufacturing than earlier expected.