Survey by the Fed Reveals Stable U.S. Economic Activity and a Boost in Employment

A recent Federal Reserve survey indicated that U.S. economic activity remained largely stable from September through early October, with a slight increase in employment. This continuation of recent trends is shaping expectations that the Fed may make a modest cut in borrowing costs in the coming weeks. The survey, known as the "Beige Book," is a compilation of anecdotal evidence on economic conditions from each of the Fed's 12 regional banks as of October 11. Despite ongoing uncertainty, the survey suggested cautious optimism for the long term.

Last month, the Fed initiated an easing cycle with a noteworthy half-point cut, lowering its policy rate to the 4.75%-5.00% range due to concerns about the labor market. This followed a series of aggressive rate hikes totaling 525 basis points in 2022 and 2023, aimed at curbing high inflation.

Recent economic data has shown robust consumer spending, significant job gains, and moderate inflation. This situation has led investors to reassess the scope and pace of future rate cuts. In September, U.S. job growth registered its largest increase in six months, with the unemployment rate dropping to 4.1%. Retail sales also performed strongly last month.

The resilience of the economy is supported by steady income growth and substantial household savings. Although the labor market has slowed, layoffs remain historically low, and this continues to support wage growth. The Fed's objective is to return inflation to its 2% target while maintaining economic stability and low unemployment. The annual rate of price increases, according to the Fed's preferred measure, slowed from 2.5% in July to 2.2% in August, while core inflation, excluding more volatile food and energy prices, saw a slight increase from 2.6% to 2.7%.