Fed’s Beige Book Sees US Growth as Stable or Slightly Weaker

The outlook for the US economy is stable or may show softer expansion, the Federal Reserve said in its Beige Book survey of regional business contacts.

(Bloomberg) — The outlook for the US economy is stable or may show softer expansion, the Federal Reserve said in its Beige Book survey of regional business contacts.

“The near-term outlook for the economy was generally described as stable or having slightly weaker growth,” , the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. “Labor-market tightness continued to ease across the nation.”

Most districts indicated little to no change in economic activity since the September report, according to the Beige Book compiled by the St Louis Fed using information gathered on or before Oct. 6. 

“Consumer spending was mixed, especially among general retailers and auto dealers, due to differences in prices and product offerings,” the report stated.  

Fed officials, who have raised interest rates by more than 5 percentage points since March 2022, have signaled they’re inclined to hold policy steady for a second time in a row next month, after a recent run-up in bond yields tightened financial conditions. The 10-year Treasury yield jumped Wednesday to the highest level since 2007 amid strong economic data.

Fed Governor Christopher Waller, who has been among the more hawkish officials, said earlier Wednesday the US central bank can wait and gather more data before deciding if the economy needs further monetary restraint.

Prices continued to increase at a modest pace overall, the report said. Sales prices increased at a slower rate than input prices, as businesses struggled to pass along cost pressures because consumers had grown more sensitive to prices, it said. 

“Overall, firms expect prices to increase the next few quarters, but at a slower rate than the previous few quarters,” it said. “Several districts reported decreases in the number of firms expecting significant price increases moving forward.”

Inflation has slowed, but measured by the Fed’s preferred index, minus food and energy, the 12-month pace was almost 4% in August.

The labor market was described as moderating, with many districts reporting slight to moderate gains in jobs.

“Wage growth remained modest to moderate in most districts,” the report said. “Contacts across many districts reported less pushback from candidates on wage offers. There were multiple reports of firms modifying their compensation packages to mitigate higher labor costs, including allowing remote work in lieu of higher wages, reducing sign-on bonuses or other wage enhancements.”

Policymakers have said additional hikes are possible because of the US economy’s resilience, as shown in stronger-than-expected retail sales and factory-output figures Tuesday, which could keep inflation elevated. The Atlanta Fed’s GDPNow forecast shows the economy is tracking at an annualized 5.4% in the third quarter, which would be the strongest since the end of 2021. 

(Updates with comments on labor market in 10th paragraph.)

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