Fed Beige Book Mentions "Economic Recession" 13 Times... "Labor Demand Cooling in Some Areas"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The U.S. Federal Reserve (Fed) is widely expected to take another giant step (a 0.75 percentage point increase in the benchmark interest rate) in November, amid signs of labor market cooling in some regions. Concerns about an economic recession have also been reported in various parts of the country, including Boston.

On the 19th (local time), the Fed released the Beige Book economic report, stating that "recent economic activity in the U.S. has modestly expanded overall," while also providing this assessment. The report evaluates economic trends in the 12 Federal Reserve districts from mid-September to October 7. It will be used as a basis for the upcoming November Federal Open Market Committee (FOMC) regular meeting scheduled for November 1-2.

According to the Beige Book, economic activity in the U.S. was modest overall but varied by industry and region. Four districts remained at previous levels, but two districts showed weakened or slowed demand due to higher interest rates, inflation, and supply chain disruptions. The Beige Book noted, "Amid growing concerns about weakening demand, the outlook has become more pessimistic," adding, "In some regions, worries about recession have increased, causing companies to hesitate in adding wage payments."

Recession concerns were particularly confirmed in several regions nationwide. The Boston Fed reported, "As fears of recession spread, economic outlooks have become increasingly pessimistic." Some companies have also frozen hiring. The Philadelphia Fed also noted, "Mentions of recession have increased." The Chicago Fed predicted slower growth in the coming months amid recession fears.

Bloomberg News reported, "Recession was mentioned 10 times in the September Beige Book, but this time it was mentioned 13 times." This reflects heightened fears of recession due to the Fed's consecutive aggressive tightening measures.

The Fed is expected to implement a fourth consecutive giant step at next month's FOMC meeting to curb persistently high inflation. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently reflects over a 95% probability that the Fed will raise rates by 0.75 percentage points in November.

Regarding employment, about half of the districts assessed some easing in hiring and retention difficulties, but several regions mentioned a slowdown in labor demand. Inflation was also reported to be slightly easing in some areas. The Beige Book stated, "Inflation expectations have softened," and "Wage increases are expected to continue, but the pace of growth is showing signs of slowing."

Meanwhile, Neil Kashkari, President of the Minneapolis Federal Reserve Bank, said in a speech that day, "Core inflation continues to rise," pointing out that service and wage-related inflation are two key factors for future monetary policy direction. He emphasized, "We are looking for evidence that the upward trend has stopped, but have not found it yet," and added, "Until then, rate hikes should not be halted."

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