Fed's Beige Book Oct'19 Analysis: Economy expanded at modest pace

Highlights of the Fed's economic summary in Beige Book:

  1. Businesses see expansion continuing, many have cut outlook
  2. Business activity varied across the country
  3. Districts in south and west were more upbeat that midwest and great plains
  4. Spending was solid on balance, housing market conditions changed little
  5. Some districts suggested persistent trade tensions and slower global growth weighed on activity; early impact of GM strike was limited
  6. Most expect economic expansion to continue; however many lowered their outlooks for growth in coming 6-12 months
  7. A number of manufacturers reduced headcount because orders were soft, some cut hours rather than reduce staff
  8. Wages rose moderately in most districts, with upwards pressure noted for lower-skill workers
  9. Employers continued to use bonuses and benefits to attract and retain talent
  10. Most districts characterized the recent pace of prices increases as modest
  11. Retailers and manufacturers noted rising input costs
  12. Shipping rates remained lower than they were earlier in the year because of excess capacity

Two points come out while reading the economic summary from BB and the impending FOMC decision due at the end of the month:

1. Fed has a track record of being bullied into rate actions by the market against the incoming data. There have been many cases of contradictions in the past from the statements of Beige book and the actual rate action taken. At the max, this highlights the current economic situation and Fed members view on it. With Fed fund futures indicating ~84% odds of a rate cut, it seems like Fed may do another cut by month-end.

2. Remarks by Fed officials in this week so far suggest that they are OK with another rate cut if there is a need for it but they are not going to push the issue too aggressively specially if some break through comes from US-China trade talks. The present situation can be construed as supposed "mid-cycle adjustment" that Fed chair Powell has been alluding to previously.


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