Here's Our Read on the Fed Beige Book
The latest collection of findings from the 12 Federal Reserve Districts offers more clues on what lies ahead.
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Building on our May Service PMI comments earleir today we can mix in what we’ve learned from the latest Fed Beige Book, an anecdotal collection of findings from the 12 Federal Reserve Districts. This new report adds to the thought the economy slowed in May compared to April while economic and policy uncertainty “led to hesitancy and a cautious approach to business and household decisions.”
The Beige Book also pointed to employment being little changed compared to April, another indication Friday’s Employment Report for May could underwhelm the current market consensus. Comments about uncertainty delaying hiring were widespread and all 12 Districts described lower labor demand, citing declining hours worked and overtime, hiring pauses, and staff reduction plans. Some of the Districts reported layoffs in certain sectors, but as the report points out, layoffs were not pervasive. Thursday’s May Challenger Job Cuts report should bring another perspective on layoffs as well as hiring plans.
Regarding inflation, the new Beige Book indicated prices have increased at a moderate pace since the previous report with all District reports indicating that higher tariff rates were putting upward pressure on costs and prices. While not all respondents indicated they would be passing those higher costs on to customers, those who intend to indicated they would look to do so within three months.
If we game it out that explains why some Fed officials have commented they would be inclined to watch the data until September or so before contemplating rate cuts. More recently, Atlanta Fed President Raphael Bostic shared he now only sees one rate cut, and as we discussed this morning following the May PMI data from ISM and S&P Global, we suspect others are likely to fall into that camp.
