Federal Reserve Beige Book: Slight Growth in Economic Activity, More Optimistic Business Outlook
On December 4th, the Federal Reserve released its latest Beige Book, indicating that U.S. economic activity saw slight expansion in November, with most regions reporting "moderate increases" in economic growth. Businesses are optimistic about future demand. This contrasts with the previous report that described the economy as "nearly flat," signaling a more positive outlook. With the conclusion of the U.S. elections and market anticipation of new policies, consumer spending and business investment are expected to further support economic resilience.
The Beige Book data shows that regions across the U.S. have improved expectations for future economic activity. Several business contacts noted that demand might rebound in the coming months, aligning with the market's expectations for robust U.S. economic growth. Additionally, some regions indicated that economic activity might benefit from easing labor shortages under President-elect Biden's immigration policies.
Orderly Slowdown in the Labor Market, But Hiring Pressures Persist
Regarding the labor market, the Beige Book stated that overall U.S. employment levels remained steady or slightly increased. Hiring activities were restrained, though layoff rates were low. Labor demand for technical and entry-level positions remains tight, especially in professional technical services and manufacturing. Biden's immigration policies might alleviate labor supply issues in the short term, but if Trump's immigration restrictions persist, they could negatively impact the low-skilled labor market in the medium to long term.
The report also mentioned that the labor market still presents structural issues, particularly the mismatch between supply and demand for technical positions, which might continue to put pressure on wage growth. Such a "wage-inflation spiral" effect warrants attention.
Moderate Inflation Pressure, but Tariff Risks Emerge
In terms of inflation, the Beige Book noted that price increases remain moderate, but some regions mentioned the potential upward risk on prices due to expected new tariff rounds under Trump. Businesses are finding it increasingly difficult to pass costs onto customers, and while inflation has not significantly worsened, the potential effects of policy changes should be monitored.
Powell: Stronger-than-Expected Economy, Cautious Rate-Cutting Approach
On the day the Federal Reserve's Beige Book was released, Chairman Powell remarked in a public address that the U.S. economy is stronger than anticipated at the time of the rate cut in September, with reduced downside risks in the labor market. Although inflation has eased, future policy actions must be carefully assessed. He emphasized, "As we strive to find the neutral rate, a more cautious approach can be taken."
Powell noted that the Federal Reserve has not yet fully achieved its goal of reducing inflation but has made some progress. The current economic situation offers more room for policy adjustments. He also stressed that the Federal Reserve's independence is widely supported by Congress and will not be influenced by external pressures.
Intermittent Rate Cuts May Become Mainstream, Fed's Approach Slows Down
Current indications suggest that the Federal Reserve's upcoming policy inclination might be intermittent rate cuts, rather than continuous or substantial ones. Powell did not explicitly support a December rate cut, stating instead that the performance of the job market and inflation data will continue to be observed. If the November Consumer Price Index (CPI) report shows sticky inflation, the Fed might delay further rate cut decisions.
Overall, the resilience of the U.S. economy remains significant, but potential risks have not completely dissipated. Future monetary policy adjustments will depend on more economic data, especially labor market and inflation trends. The Fed's next steps remain to be seen, and the market is keenly watching for more signals.
