The U.S. Federal Reserve (Fed) said in its Beige Book released on Wednesday (30th) that the U.S. economy grew only slightly from mid-October to late November, and businesses were affected by high inflation and high interest rates. become more pessimistic.
According to the Beige Book: “Since the last report, economic activity has been broadly flat or growing only marginally, below the previous modest average pace.”
“Interest rates and inflation continue to weigh on economic activity, with many respondents expressing higher levels of uncertainty or a more pessimistic view of the economic outlook.”
The Beige Book is released two weeks before each regular meeting of the Fed. It is a regular survey of the comments on the current economic situation in the 12 regions under its jurisdiction. The survey time is from mid-October to November 23.
The Fed is about to hold its last regular meeting of the year on December 13-14, and the market generally expects that the rate hike will slow down to 2 yards (50 basis points). Fed Chairman Jerome Powell’s speech at the Brookings Institution on the same day strengthened this expectation. He said that the next meeting will slow down the pace of interest rate hikes at the earliest, but emphasized that the terminal interest rate will be higher than originally expected.
After Powell’s speech, CME’s FedWatch Tool showed that the US federal funds rate futures market estimated that the probability of raising interest rates by 2 yards in December was 77%, and the probability of raising interest rates by 3 yards was 23%. Rate forecasts fall at 4.75-5%.
inflation
The report has several key points. First of all, in terms of inflation, the Beige Book shows that “price growth has slowed down” due to weaker demand and improved bottlenecks in the supply chain. Some retailers have had to cut prices to clear inventory. Prices of some commodities, including lumber, fell, while rents and home prices rose more modestly.
But the slowdown in price gains is likely to be very slow, with the Beige Book saying inflation is forecast to be flat or slow further. US inflation remained at 7.7% in October, although it has fallen from a 40-year peak of 9.1% in June.
Economic activity
The Beige Book showed that five of the 12 regions reported “slight or moderate growth” in economic activity, while the remaining seven reported “flat” or “slight to moderate declines.”
Consumer spending was flat and spending on services such as travel even grew, but manufacturers’ sentiment was mixed.
employment
The Beige Book showed a slight cooling in the labor market. Companies need fewer employees, and it is easier to keep people, showing that the shadow of the economic recession has made more employees choose to stay in their current jobs.
But even if the economy slows further, companies may not resort to layoffs because those workers were hard-won. This reflects the fact that the United States is experiencing the worst labor shortage in decades. “Even with lower labor demand, some respondents are still reluctant to lay off workers because recruiting is not easy.”
Some businesses are reporting back, wage growth has slowed slightly and could cool further.
view on recession
The Beige Book pointed out that more companies are worried about the economic recession in 2023. The last Beige Book did not mention the possibility of a recession at all.
Fed officials have acknowledged that the fight against inflation could spark a recession. The Fed’s internal economists also recently said that the economy may be in recession next year, which is the first time since March this year.