Fed, May Beige Book Release
The U.S. Federal Reserve (Fed), which hinted at a delay in interest rate cuts, assessed that the U.S. economy showed slight or modest growth in most regions since early April. However, the tone of the economic outlook shifted from the previous "cautiously optimistic" stance to "somewhat more pessimistic."
On the 30th (local time), the Fed released the 'Beige Book,' a report on economic trends, stating that "national economic activity continued to expand from early April through mid-May, recording slight or modest growth in most regions."
The Beige Book is a report evaluating economic conditions in the 12 Federal Reserve Bank districts. It serves as foundational material for the Federal Open Market Committee (FOMC) regular meeting scheduled for June 11-12.
The report noted that only 2 of the 12 districts showed no change in economic activity, while most regions experienced slight or modest growth. The previous Beige Book released last month also diagnosed slight or modest growth in economic activity in 10 districts.
Regarding consumer spending, which supports two-thirds of the U.S. economy, the report stated that discretionary spending decreased and price sensitivity increased, resulting in slight growth.
On the economic outlook, the Beige Book diagnosed that "overall outlook has become somewhat more pessimistic as reports indicate increased uncertainty and greater downside risks." The previous Beige Book had described the outlook as "cautiously optimistic," marking a slight change in the tone of the economic assessment.
In terms of the labor market, 8 of the 12 districts saw employment increase slightly or moderately, resulting in an overall slight increase in employment. Four districts reported no change in employment. The previous report noted very slow or modest employment growth in 9 districts, with 3 districts unchanged.
Wages in some regions have risen to pre-COVID-19 pandemic levels or higher.
Prices continued to rise modestly, consistent with the previous report.
Meanwhile, Federal Reserve Chair Jerome Powell and other central bank officials have consistently conveyed messages over recent weeks emphasizing the need for patience until further inflation data shows additional easing. On the previous day, Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated that he wants to see several months of data indicating inflation easing before considering rate cuts. He also said that if price pressures increase, he would not rule out the possibility of further rate hikes.
Amid this, the market is lowering expectations for rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflected nearly a 46% chance that the Fed would cut rates by 0.25 percentage points or more at the September FOMC meeting. This is down from about 57% a week and a month ago. However, if inflation continues to ease consistently and the economy cools in terms of employment and growth rates, the Fed may proceed with rate cuts.
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