About a year ago, the Federal Reserve issued the “jumbo” rate cut, reducing interest rates for the first time since hiking them to their highest levels in decades, a process that began in 2022. Like many others, I presumed that this, plus the further rate cuts forecast for 2024 (two of which ended up happening), would get the ball rolling towards manufacturers making greater capital equipment investments in 2025.
That was a bad prediction, largely because, as you’ve likely heard by now, Donald Trump won the presidency for a second time, and tariffs and trade wars became the defining economic policies for the year — not lower interest rates. Until last week, interest rates remained where they’d stood since late December 2024, and at the Fed’s annual Jackson Hole Economic Symposium in August, Fed Chair Jerome Powell assessed that interest rates remained “modestly” restrictive.
During his press conference last week, following the first Fed rate cut of 2025, Powell said that rates are now moving towards a “more neutral” range. Additionally, the dot plot that shows where individual members of the Federal Open Market Committee (FOMC) expect interest rates to be over the next few years suggests two more rate cuts in 2025, and at least one in 2026.
It’s important to keep in mind that the “neutral” interest rate is a theoretical concept of the borrowing level that neither stimulates nor restrains economic growth, rather than an exact number. Thus, it’s always going to be characterized by different estimates and fluctuating economic conditions. With that said, if all the cuts that are forecast in the latest dot plot come to pass, that does seem like it would take U.S. interest rates well into neutral territory.
In that vein, while interest rates may have still been high enough to restrict manufacturing capital equipment investments up to this point in 2025, borrowing costs may at least drop enough by next year to play less of a role in manufacturers’ decision-making than they have since 2022. This doesn’t mean manufacturing stakeholders should expect interest rates to be low enough to spur additional investment, but rather that they need to take other related factors into consideration.
From a macro standpoint, the key elements to watch for are still tariffs, immigration, and the labor market. Powell’s Jackson Hole speech again provides some necessary perspective:
“This year, the economy has faced new challenges. Significantly higher tariffs across our trading partners are remaking the global trading system. Tighter immigration policy has led to an abrupt slowdown in labor force growth. Over the longer run, changes in tax, spending, and regulatory policies may also have important implications for economic growth and productivity. There is significant uncertainty about where all of these policies will eventually settle and what their lasting effects on the economy will be.”
Graph of Manufacturers’ New Orders. Image courtesy of the St. Louis Fed
It’s also worth mentioning here what Bloomberg noted in an August article about July’s 1.1 percent rise in non-defense capital goods orders (excluding aircraft):
“US orders for business equipment increased in July by more than projected, suggesting companies are moving forward on investment plans as uncertainty around trade and tax policy gradually diminishes. …Despite the gain, economists expect business investment to be soft for the remainder of the year before picking up in 2026 as companies take advantage of tax provisions after President Donald Trump signed the One Big Beautiful [OBB] Bill. In the first half of this year, companies were largely cautious about capital spending because of erratic tariff announcements and concerns about demand.”
One of the features of the OBB Bill that the excerpt refers to is the reinstatement of first-year 100% tax deduction for equipment purchased for R&D, a rule that disappeared between 2022-2024 as a result of the original Trump tax cuts. Assuming that interest rates are in the neutral zone by next year, that factor, combined with the tax deduction reinstatement, could certainly help stimulate new capital equipment investment.
Obviously, the main problem with getting optimistic about that scenario is precisely how much uncertainty lies in the sources of uncertainty that Powell mentioned. While tariffs and trade wars tend to get the brunt of the attention, Powell spent a good bit of the post-cut press conference focused on immigration: “If you’re looking at why employment is doing what it’s doing, that’s much more about immigration [than about tariffs].”
That issue has been thrust into the spotlight recently thanks to an ICE raid on a Hyundai-LG battery plant in Ellabell, Georgia, on September 4. The facility, still under construction, had over 300 South Korean workers detained — part of a larger group of approximately 475 people. The incident sparked diplomatic concern as President Lee Jae Myung of South Korea warned that it could make South Korean companies “very hesitant” to invest in the U.S. more broadly. Fascinatingly, immediately after the incident, Trump also responded, connecting the raid to the lack of manufacturing workforce development in the U.S.:
“If you don’t have people in this country right now that know about batteries, maybe we should help them along…,” Trump said, adding that industries like shipbuilding and computer manufacturing also need skilled trainers. “So, we’re going to look at that whole situation. We have a lot of industries that we don’t have anymore, and we’re going to have to train people.”
For the manufacturing sector in general and the additive manufacturing (AM) industry in particular, the labor market is probably the area I would stay most focused on. Tariffs and trade wars are far more volatile, constantly fluctuating situations, and as everyone seems to agree, they will take time to address. Additionally, they are sets of issues that are far beyond anyone’s control.
While workforce development is also a very broad-sweeping issue that is difficult to address, the AM industry has nonetheless demonstrated increasing success at targeting the challenge and creating viable solutions, particularly in recent months. EOS has done excellent work over the years with its Additive Minds Academy, and recently partnered with the U.S. Navy to train workers for the Maritime Industrial Base (MIB). Nikon Advanced Manufacturing also plans to do much the same, in a partnership with ASTM announced over the summer.
EOS’s Additive Minds Academy center. Image courtesy of EOS.
An environment of neutral interest rates also favors a focus on workforce development, with lower borrowing costs generally supporting increased hiring. Additionally, the Trump administration seems inclined to continue the Biden administration’s efforts to expand federal support for a range of new options involving vocational training, even if the two administrations vary widely in terms of how they frame the issue. For original equipment manufacturers (OEMs), getting as many new workers up-to-speed on your ecosystem as quickly as possible could ultimately be the fastest path towards long-term growth in machine sales.
One rate cut may mean very little for manufacturers. But three more over the next year, combined with a host of other federal policies supporting increased investment in the manufacturing base, should start to move business conditions in the right direction for new industrial activity. As always, the key will be in how proactive decision-makers are in positioning their enterprises within the full range of variables defining their respective economic context.