Highlights
The contents of the Beige Book will help keep the FOMC cautious about lowering rates when it meets on July 29-30. If the labor market is cooling further, inflation is regaining some warmth. The FOMC may find additional challenges in balancing the dual mandate as tension grows between an economy and labor market slipping into low gear and prices ratcheting up as higher tariffs pass through to businesses and consumers.
The Fed's Beige Book for the period between late May and early July shows some slight improvement in economic activity, although it remains consistent with weak conditions. Only three Districts reported growth (Richmond, Chicago, and Dallas), and one was on the border between flat and slight growth (Boston). Where there was improvement, it was in four districts where conditions rose to neutral after a decline in the prior month (Boston, Minneapolis, Dallas, and San Francisco). Conditions remained around neutral for two districts (Cleveland and St. Louis). Two districts report modest declines in activity (New York and Philadelphia). With only ¼ of the districts reporting outright growth, and the majority of those with only slight expansion, the Beige Book continues to report conditions consistent with an economic downturn since early in 2025.
The modestly better tone of the report for current conditions was not shared for the near future. The Beige Book said, The outlook was neutral to slightly pessimistic, as only two Districts expected activity to increase, and others foresaw flat or slightly weaker activity. Regional economies continue to operate with high levels of uncertainty.
The Beige Book reports a soft labor market. The Beige Book said, Employment increased very slightly overall, with one District noting modest increases, six reporting slight increases, three no change, and two noting slight declines. Hiring remained generally cautious, which many contacts attributed to ongoing economic and policy uncertainty. Labor availability improved for many employers, with further reductions in turnover rates and increased job applications. One the downside, A growing number of Districts cited labor shortages in the skilled trades. Several Districts also mentioned reduced availability of foreign-born workers, attributed to changes in immigration policy. Employers in a few Districts ramped up investments in automation and AI aimed at reducing the need for additional hiring. The outlook for the labor market is weaker. The Beige Book said, Looking ahead, many contacts expected to postpone major hiring and layoff decisions until uncertainty diminished. Wage increase were modest overall.
Signs of inflationary pressures are relatively unchanged from the prior Beige Book, with seven characterizing price growth as moderate and five characterizing it as modest, mostly similar to the previous report. The impact of higher tariffs is visible as, In all twelve Districts, businesses reported experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction. Rising insurance costs represented another widespread source of pricing pressure. Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers' growing price sensitivity, resulting in compressed profit margins. Inflation expectations are for cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer.
The Fed's Beige Book for the period between late May and early July shows some slight improvement in economic activity, although it remains consistent with weak conditions. Only three Districts reported growth (Richmond, Chicago, and Dallas), and one was on the border between flat and slight growth (Boston). Where there was improvement, it was in four districts where conditions rose to neutral after a decline in the prior month (Boston, Minneapolis, Dallas, and San Francisco). Conditions remained around neutral for two districts (Cleveland and St. Louis). Two districts report modest declines in activity (New York and Philadelphia). With only ¼ of the districts reporting outright growth, and the majority of those with only slight expansion, the Beige Book continues to report conditions consistent with an economic downturn since early in 2025.
The modestly better tone of the report for current conditions was not shared for the near future. The Beige Book said, The outlook was neutral to slightly pessimistic, as only two Districts expected activity to increase, and others foresaw flat or slightly weaker activity. Regional economies continue to operate with high levels of uncertainty.
The Beige Book reports a soft labor market. The Beige Book said, Employment increased very slightly overall, with one District noting modest increases, six reporting slight increases, three no change, and two noting slight declines. Hiring remained generally cautious, which many contacts attributed to ongoing economic and policy uncertainty. Labor availability improved for many employers, with further reductions in turnover rates and increased job applications. One the downside, A growing number of Districts cited labor shortages in the skilled trades. Several Districts also mentioned reduced availability of foreign-born workers, attributed to changes in immigration policy. Employers in a few Districts ramped up investments in automation and AI aimed at reducing the need for additional hiring. The outlook for the labor market is weaker. The Beige Book said, Looking ahead, many contacts expected to postpone major hiring and layoff decisions until uncertainty diminished. Wage increase were modest overall.
Signs of inflationary pressures are relatively unchanged from the prior Beige Book, with seven characterizing price growth as moderate and five characterizing it as modest, mostly similar to the previous report. The impact of higher tariffs is visible as, In all twelve Districts, businesses reported experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction. Rising insurance costs represented another widespread source of pricing pressure. Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers' growing price sensitivity, resulting in compressed profit margins. Inflation expectations are for cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer.
Definition
This book is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.
Description
This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are the single most influential event for the markets. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity. Since the past recession, traders worry about the impact of the Beige Book on the timing of tapering quantitative easing.
Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.
Frequency
Eight times a year
If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity. Since the past recession, traders worry about the impact of the Beige Book on the timing of tapering quantitative easing.
Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.
Frequency
Eight times a year
