Fed confirms economic cooling will lead to rate cuts from September | Economy

Economic activity in the United States is slowing. The Federal Reserve’s Beige Book confirms the cooling seen in other indicators, such as labor market indicators and the dynamics of the gross domestic product (GDP). Barring surprises, this slowdown in economic activity, together with easing price pressures, will allow the Federal Reserve to cut interest rates starting in September.

The Beige Book examines economic conditions in the 12 districts into which the Federal Reserve has divided the United States. It offers a somewhat impressionistic overview of economic conditions that helps interpret other indicators, based on a variety of information, mostly qualitative, gathered from sources in each of these districts. It is published eight times a year.

“Economic activity continued to grow at a light to moderate pace in most areas,” the report, published Wednesday, said. “However, while seven counties reported some increase in activity, five reported stagnation or decline in activity, three more than in the previous reporting period. “Wages continued to grow at a moderate pace in most areas, while prices generally rose moderately,” it added in its overall findings.

The Beige Book devotes a section to prices. It says they rose at a moderate pace, with a few areas seeing only minimal increases. While consumer spending overall was relatively flat, nearly all areas reported that retailers discounted items or that price-sensitive consumers bought only essentials, reduced the quality of their purchases, bought fewer items, or shopped around for better deals.

According to official statistics released last week, prices fell 0.1% in June, leaving the annual rate at 3.0%, compared with 3.3% in the previous month. This, with more price and labor market data to come in the coming months, clears the way for the Federal Reserve’s Monetary Policy Committee to cut interest rates in September for the first time in four and a half years. The market is taking this cut for granted, and some are even expecting three cuts before the end of the year, at meetings in September, November and December.

The time is approaching

In a speech before the Beige Book was published, Federal Reserve adviser Christopher Waller said the time was approaching to lower the price of money. “While I don’t believe we have reached our final destination, I do believe we are approaching the point where a rate cut will be justified,” he said in a speech at the Federal Reserve Bank of Kansas City, Missouri.

“The situation (of the labour market) has changed radically now,” he said. “The labour market is at an optimal point: employment growth is not excessive if immigration is taken into account, nominal wage growth is approaching a rate consistent with price stability, the unemployment rate is approaching what is considered its long-term value, the job vacancy rate is approaching the pre-pandemic level, and the involuntary layoff rate has remained stable at 1% for more than two years. On the employment aspect of the dual mandate, it is quite possible that we will achieve a soft landing,” he said.

The dual mandate is to achieve maximum employment and price stability. Despite his hopes for a soft landing – an economic cooling that will keep inflation in check without triggering a recession that would significantly increase unemployment – ​​he warned: “I see a greater risk of unemployment rising than we have seen in a long time.”

Waller’s comments join other messages from Federal Reserve members, including Chairman Jerome Powell. At an event in Washington on Monday, Powell said confidence has increased that inflation is moving steadily toward its 2% price stability target, the condition the central bank has set to begin lowering money prices. “We didn’t gain confidence in the first quarter, but the three readings in the second quarter, including last week, are somewhat confidence-boosting,” Powell said. “Now that inflation has come down and the labor market has actually cooled, we’re going to look at both mandates,” Powell said. “They’re much better balanced.”

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