• 2024-06-21
• News

Fed Beige Book: Inflation Slows, Optimism for Long-Term Outlook

The Beige Book noted that since early September, economic activity in almost all regions of the United States has not changed much, inflation has continued to slow down, and the number of people employed has increased slightly.

Economic activity in the United States changed little between early September and early October, with a slight increase in business hiring, continuing the recent trend and further reinforcing expectations that the Federal Reserve may choose a smaller rate cut (25 basis points) two weeks later.

The Federal Reserve's latest check on the health of the economy shows that inflationary pressures continue to ease, despite input prices generally being higher than selling prices, which harms corporate profit margins.

The Federal Reserve said in the "Beige Book" on Wednesday that since early September, economic activity has changed little in almost all regions, with only two regions reporting moderate growth. The survey, which collected opinions from business contacts of the Federal Reserve's 12 regional banks through October 11, reported that "despite increased uncertainty, contacts are slightly more optimistic about the long-term outlook."

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Last month, amid growing concerns about the labor market, the Federal Reserve began a rate-cutting cycle with a rare 50 basis point rate cut, bringing rates down to the 4.75%-5.00% range. The Federal Reserve raised rates by 525 basis points in 2022 and 2023 to curb high inflation.

Since then, a series of consumer spending, employment growth, and inflation data that exceeded expectations have led investors to reduce bets on the speed and magnitude of rate cuts.

The resilient economy is supported by stable income growth and ample household savings. Despite a slowdown in labor market momentum, layoff levels remain at historically low levels, which helps drive wage growth.

U.S. employment growth saw a significant increase for the first time in six months in September, with the unemployment rate falling to 4.1%, while retail sales also saw solid growth last month.

In the latest survey, more regions' labor markets showed slight to moderate growth, reflecting the stability of the labor market.

However, demand for workers has eased. A source at a supply company in Minnesota told the Minneapolis Federal Reserve, "We previously had a hard time filling a high-skill driving position, but now there is a lot of interest in this position, and I almost fell out of my chair."There are no apparent signs of deterioration, and layoffs remain limited. The San Francisco Fed stated that some employers have begun to hire for positions that have been on hold for the past year, while wage levels across the Federal Reserve districts are "generally still growing at a moderate to moderate pace."

Investors currently expect the Federal Reserve to cut interest rates by 25 basis points at the policy meeting on November 6-7, and to cut rates by the same amount again in December.

Many contacts across the country have cited the decline in borrowing costs and expectations of more rate cuts in the future as reasons for their optimism, but uncertainties about elections, inflation prospects, and interest rate trends continue to trouble many.

The Federal Reserve's goal is to keep the economy growing strongly, maintain low unemployment rates, and bring inflation back to the target level of 2%. Therefore, the Federal Reserve is still closely monitoring price pressures.

According to the PCE price index preferred by the Federal Reserve, inflation slowed to 2.2% year-on-year in August, compared to 2.5% in July. However, the core PCE, which excludes more volatile food and energy components, rose slightly to 2.7% year-on-year in August, compared to 2.6% in July.

The Federal Reserve's survey shows that in most regions, the price of sales only rose slightly or moderately, although the prices of some daily food products, such as eggs and dairy products, rose more significantly. In line with previous reports, consumers are also described as being more sensitive to prices.

Input prices generally rose moderately. The report stated that in many regions, the increase in input prices exceeded the increase in sales prices, which eroded corporate profits. The pressure from rising insurance and healthcare costs is particularly severe.

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