Fed Beige Book "Economic Growth Moderate...Job Growth Slows"

The Federal Reserve (Fed) has diagnosed that overall economic activity in the United States grew moderately while the pace of job growth slowed. Wage growth and inflation are also expected to decelerate going forward.

[Image source=Reuters Yonhap News]

On the 6th (local time), the Fed released its Beige Book report on economic conditions, stating that "in most regions during July and August, the economy showed modest growth." This assessment covers the economic trends in the 12 Federal Reserve Bank districts as of the 28th of last month. It will be used as foundational data for the upcoming Federal Open Market Committee (FOMC) regular meeting scheduled for the 19th-20th.

The Beige Book noted that "consumption related to tourism was stronger than expected," diagnosing it as the final phase of pent-up demand that had been suppressed during the pandemic. Despite high interest rates and inflation, increased summer vacation spending helped drive the economy. Excluding tourism, other retail spending showed a slowdown, particularly in non-essential goods.

Reports from some regions indicated that saved funds have been fully depleted and reliance on borrowing has increased. Additionally, in the San Francisco and Dallas Fed districts, dependence on support services such as food banks has expanded, especially among the elderly.

Inflation slowed in most regions. The Beige Book analyzed that "inflation decelerated more rapidly particularly in the manufacturing and consumer goods sectors," concluding that overall economic growth is proceeding moderately. Although wage pressures were high in the first half of the year, the report stated that "almost all regions expect wage growth to slow in the short term" starting in the second half.

Job growth also slowed nationwide. However, the Beige Book added that labor market imbalances persist due to a limited number of skilled workers in most areas. The previously released August employment report showed that the unemployment rate rose to its highest level in about a year and a half, and wage increases slowed more than expected.

Since raising the U.S. benchmark interest rate above 5% starting in March last year, the Fed is now taking a cautious approach regarding further rate hikes. Susan Collins, President of the Boston Federal Reserve Bank, said at an event in Boston that "we are close to or may even be at the peak of the policy rate," but added, "additional tightening may be necessary depending on incoming data." She emphasized that "patience and a comprehensive evaluation of data are essential at this stage of the policy cycle." This aligns with previous remarks by Fed Chair Jerome Powell and Governor Christopher Waller.

However, concerns have been raised that recent sharp increases in oil prices and stronger-than-expected economic indicators, especially in the service sector, could again increase inflationary pressures. This could impact the Fed’s tightening path. Mohamed El-Erian, Chief Advisor at Allianz, appeared on CNBC’s Squawk Box and predicted that rising oil prices combined with a stronger-than-expected economy will influence the Fed’s future rate decisions. Bloomberg reported that considering recent data, the Fed may revise upward its growth forecast for this year when it releases its economic projections later this month.

According to the CME FedWatch tool, as of this afternoon, federal funds futures markets still reflect over a 93% probability that the Fed will hold rates steady in September. The probability of a hold in November stands in the mid-50% range. Although the Fed’s June dot plot indicated the possibility of one more rate hike this year, the market still leans more toward a pause. The remaining FOMC meetings this year are scheduled for September, November, and December.

This content was produced with the assistance of AI translation services.