Fed reading the Beige Book closely

While the Federal Reserve continue to work without government-issued economic data, Chair Jerome Powell appeared to signal policymakers remain on track for a 25 basis-point cut later this month. He cited the softening of the labor market. Last week, Fed Governor Christopher Waller advocated for continuing to cautiously pursue cuts. He pointed to conflicting data that shows both a growing economy and a weakening employment situation, but believes the immediate focus should be on the latter: “You don’t want to make a mistake, so the way to avoid that is to go cautiously or carefully and do 25, wait and see what happens.”

On the other hand, Stephen Miran, the newest Fed governor, called for larger interest rate cuts as he believes the recent flare up of US-China tensions calls for more aggressive monetary policy action. “There’s now more downside risks than there was a week ago, and I think it’s incumbent upon us as policymakers to recognize that should get reflected in policy.” He favors a 50 basis-point cut at the next Federal Open Market Committee meeting, whose decision on rates will come on the afternoon of October 29.

In light of the information desert, the Fed is likely to lean heavily on its so-called Beige Book, a compilation of reports by the regional Fed branches about the economies of their respective geographical areas. The most recent one indicated that economic activity was little changed in recent weeks and employment levels held largely stable. That doesn’t tell us much about the path of the fed funds rate, but probably won’t change policymakers minds. The markets expect another quarter-point cut.