Highlights
The latest Beige Book reflects conditions across the 12 Federal Reserve districts roughly from late August through early November. Overall, the tone of the report was softer than the prior release. Only three districts reported expanding conditions with growth slight in two (Boston and Philadelphia) and modest in one (Richmond). Five districts report growth flat or unchanged (Cleveland, Atlanta, Chicago, St. Louis, and Dallas). Four districts report slight declines in growth (New York, Minneapolis, Kansas City, and San Francisco).
The FOMC will be relying on the anecdotal evidence about the US economy more than usual when it next meets on October 28-29. The federal government shutdown has delayed some important data reports and private data sources are not as comprehensive as the government datasets. The lack of official data means the FOMC will be cautious about adjusting monetary policy. On October 14, Chair Jerome Powell warned that monetary policy is not on a predetermined path based on the quarterly forecast updated in September.
A rate cut remains the most likely outcome of the meeting. Expectations should be for a modest 25 basis points, not a more aggressive move. The US economy continues to deliver modest growth despite the disruptions created by rapid and chaotic policy changes out of the Trump administration. That may change if the current shutdown drags on and if the most recent pronouncements on tariffs become a reality.
The Beige Book noted that Employment levels were largely stable in recent weeks, and demand for labor was generally muted across Districts and sectors. In most Districts, more employers reported lowering head counts through layoffs and attrition, with contacts citing weaker demand, elevated economic uncertainty, and, in some cases, increased investment in artificial intelligence technologies. Wage growth is modest to moderate. Employers are seeing outsized increase in employer-sponsored health insurance expenses, which are contributing to higher compensation costs even as wage pressures are easing.
The Beige Book said, Prices rose further during the reporting period. It continued, Several District reports indicated that input costs increased at a faster pace due to higher import costs and the higher cost of services such as insurance, health care, and technology solutions. Tariff-induced input cost increases were reported across many Districts, but the extent of those higher costs passing through to final prices varied. Some firms facing tariff-induced cost pressures kept their selling prices largely unchanged to preserve market share and in response to pushback from price-sensitive clients. However, there were also reports of firms in manufacturing and retail trades fully passing higher import costs along to their customers.
The FOMC will not find a lot of evidence that the labor market has deteriorated significantly since the prior Beige Book, but it is losing strength. The FOMC will have to assess the risk to maximum employment against the threat of a fresh round of inflation, and some of it particularly in nondiscretionary items like insurance. The FOMC may judge these to be of short duration or one-offs, but it won't change that inflation is on the rise and disrupting the progress made to bring inflation back down to around 2 percent.
The FOMC will be relying on the anecdotal evidence about the US economy more than usual when it next meets on October 28-29. The federal government shutdown has delayed some important data reports and private data sources are not as comprehensive as the government datasets. The lack of official data means the FOMC will be cautious about adjusting monetary policy. On October 14, Chair Jerome Powell warned that monetary policy is not on a predetermined path based on the quarterly forecast updated in September.
A rate cut remains the most likely outcome of the meeting. Expectations should be for a modest 25 basis points, not a more aggressive move. The US economy continues to deliver modest growth despite the disruptions created by rapid and chaotic policy changes out of the Trump administration. That may change if the current shutdown drags on and if the most recent pronouncements on tariffs become a reality.
The Beige Book noted that Employment levels were largely stable in recent weeks, and demand for labor was generally muted across Districts and sectors. In most Districts, more employers reported lowering head counts through layoffs and attrition, with contacts citing weaker demand, elevated economic uncertainty, and, in some cases, increased investment in artificial intelligence technologies. Wage growth is modest to moderate. Employers are seeing outsized increase in employer-sponsored health insurance expenses, which are contributing to higher compensation costs even as wage pressures are easing.
The Beige Book said, Prices rose further during the reporting period. It continued, Several District reports indicated that input costs increased at a faster pace due to higher import costs and the higher cost of services such as insurance, health care, and technology solutions. Tariff-induced input cost increases were reported across many Districts, but the extent of those higher costs passing through to final prices varied. Some firms facing tariff-induced cost pressures kept their selling prices largely unchanged to preserve market share and in response to pushback from price-sensitive clients. However, there were also reports of firms in manufacturing and retail trades fully passing higher import costs along to their customers.
The FOMC will not find a lot of evidence that the labor market has deteriorated significantly since the prior Beige Book, but it is losing strength. The FOMC will have to assess the risk to maximum employment against the threat of a fresh round of inflation, and some of it particularly in nondiscretionary items like insurance. The FOMC may judge these to be of short duration or one-offs, but it won't change that inflation is on the rise and disrupting the progress made to bring inflation back down to around 2 percent.
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
