Fed’s Beige Book report noted “slight to modest” increase in economic activity across various districts. Specifically, eight districts reported slight to modest growth, three observed no change, and one experienced slight softening in economic conditions.

In the realm of consumer spending, the report indicates slight downturn, especially concerning retail goods. This trend is attributed to a “heightened price sensitivity” among consumers, who are increasingly opting to trade down and shift their spending away from discretionary goods. Manufacturing activity remained “largely unchanged”, with disruptions in shipping through the Red Sea and Panama Canal reportedly having minimal overall impact.

The report also highlights persistent price pressures, although some districts observed moderation in inflation. Businesses are finding it increasingly difficult to pass higher costs onto customers, who are becoming more resistant to price increases. Labor market conditions have shown further signs of improvement, with nearly all districts reporting increased labor availability and enhanced employee retention.

Full Beige Book here.

In a Reuters interview, San Francisco Fed President Mary Daly said, “lifting off in March when you have an unemployment rate of 3.9%, and an inflation rate that’s north of our price stability goal of average 2% inflation, to me seems a quite reasonable thing.” But she didn’t offer her prediction on the number of rate hike needed this year.

Daly also said even with the rate hikes, “we are not bridling the economy and starting to restrain it.” Rate would remain well below the “neutral” level of 2.50%. Meanwhile, once Fed has raised rates once or twice, she said, it should start shrinking the balance sheet as a “predictable” manner.

Fed cuts federal funds rate by -25bps to 2.00-2.25%. The decision was made by 8-2 vote, with two known hawks, Esther George and Eric Rosengren dissenting.

Fed noted that household spending growth has picked up but growth of business fixed investment “has been soft”. Headline and core inflation are “running below” 2%. And, in light of the “implications of global developments” and “muted inflation pressures” FOMC decided to cut interest rates.

Fed also pledged to continue to monitor the “implications of incoming information” to decide future interest rate path. The assessment will “take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

Full statement below.

Federal Reserve issues FOMC statement

Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.