Fed Beige Book flags flat growth and modest inflation as markets keep December rate-cut odds high
The Federal Reserve’s latest Beige Book showed economic activity largely flat and price growth moderate across most districts, reinforcing market bets on a December rate cut and sharpening focus on the dollar’s path as front-end yields remain sensitive to softer macro signals.
What the Fed’s survey says
The report, compiled by the Federal Reserve Bank of Dallas with information through November 17, 2025, found that overall activity was little changed across most of the twelve districts. Two districts cited a modest decline, while one reported modest growth. Wages increased at a modest pace overall—firmer in manufacturing and construction—while prices rose moderately, with many firms still facing elevated input costs from tariffs and services.
Labor demand cooled as employers favored hiring freezes, attrition, and hour reductions over outright layoffs. Health-insurance premiums continued to lift compensation costs, and several contacts said AI adoption either displaced some entry-level roles or boosted productivity enough to curb new hiring.
FX, rates and risk sentiment
With markets assigning roughly 84% odds to a December rate cut, front-end Treasury yields remain the fulcrum for FX. A Beige Book signaling softer labor demand and only moderate price pressures tends to bias the dollar lower at the margin if it reinforces easier policy expectations, though the pass-through will hinge on incoming data and Fedspeak. For equities, the mix of flat growth and easing labor tension supports a “soft landing” narrative, but uneven demand and margin pressure may keep dispersion high across sectors.
On commodities, steady energy demand in parts of the South and Midwest contrasts with softer retail and agriculture in the West, while tariff-linked cost pressures in goods could complicate pricing for manufacturers and retailers heading into year-end. According to market data compiled by BPayNews, the Beige Book’s tone largely aligns with the rates market’s current easing trajectory.
Labor market: softer demand, higher benefit costs
- Employment edged lower, with about half of districts citing weaker labor demand.
- Companies leaned on hiring freezes, replacement-only hiring, attrition, and hour adjustments rather than broad layoffs; layoff announcements did rise but were not the primary tool.
- Labor availability improved overall, though skilled roles and areas with fewer immigrant workers remain tight.
- Wage growth was modest overall; pressures were more pronounced in manufacturing, construction, and health care.
- Rising health-insurance premiums added to total labor costs.
- AI adoption displaced certain entry-level positions or raised productivity enough to limit incremental hiring.
Prices and margins: tariffs bite, pass-through mixed
- Prices rose moderately across the economy.
- Tariffs contributed to widespread input-cost pressures in manufacturing and retail.
- Costs for insurance, utilities, technology, and health care also climbed.
- Firms’ ability to pass on higher costs varied by demand conditions and competitive pressure; several reported margin compression.
- Some materials saw price declines amid sluggish demand or reduced/delayed tariffs.
- Most contacts expect continued upward cost pressures, but near-term price hikes remain uneven.
Regional snapshot
Boston: Slight expansion; home sales improved, consumer spending flat. Employment edged down, wages rose modestly; price pressures mild beyond groceries. Outlook mildly positive.
New York: Modest activity decline with slight job losses and some major layoffs. Prices rose at a slower pace but stayed elevated. Manufacturing improved; consumer spending softened. Limited improvement anticipated.
Philadelphia: Modest decline in activity, exacerbated by the government shutdown. Employment fell; price pressures hit lower-income households. Policy uncertainty weighing on small firms.
Cleveland: Slight pickup overall; professional services firmer, manufacturing slightly softer but buoyed by AI-related demand. Nonlabor costs elevated; selling prices up moderately.
Richmond: Modest growth; consumer spending up slightly while manufacturing contracted. Employment steady with moderate wage gains; prices rose moderately.
Atlanta: Activity mostly unchanged; employment flat, wages and prices modestly higher. Retail cooled, travel flat-to-lower. Home sales declined; some improvement in commercial real estate. Energy demand up.
Chicago: Slight expansion in jobs, spending, construction, real estate, and manufacturing. Prices increased moderately; wages modest. Financial conditions loosened marginally; farm income outlook for 2025 improved.
St. Louis: Activity and employment stable but demand softened, with the shutdown cited as a headwind. Prices rose moderately; expectations point to stronger price growth ahead. Sentiment slightly pessimistic.
Minneapolis: Flat activity; headcount slipped slightly as labor supply improved. Price pressures increased. Auto sales rose, but broader consumer spending fell. Manufacturing, home sales, and commercial construction improved; agriculture stayed weak.
Kansas City: Growth slowed a touch amid softer labor conditions and cooler consumer spending. Wages matched cost-of-living increases. Prices rose modestly with only partial cost pass-through; firms still expect employment gains.
Dallas: Slight weakening led by services, retail, and banking; housing stayed soft, energy flat. Manufacturing was a relative bright spot. Employment declined overall; prices rose moderately; outlooks dimmed on economic and policy concerns.
San Francisco: Mixed conditions. Employment steady, wages and prices up somewhat. Retail, agriculture, and housing cooled; services, manufacturing, and commercial real estate held steady. Lending activity ticked up.
Key Points
- Economic activity was broadly flat; two districts reported modest declines, one cited modest growth.
- Labor demand softened; firms favored hiring freezes and hour cuts over mass layoffs.
- Wage growth remained modest overall, firmer in manufacturing and construction; health-insurance costs kept rising.
- Prices increased at a moderate pace; tariffs and services costs pressured margins.
- Pass-through of higher costs to consumers was mixed; some materials prices fell on weak demand.
- Markets price roughly 84% odds of a December Fed rate cut; FX sensitivity centers on the front end of the curve.
What it means for traders
The Beige Book’s combination of flat growth, easing labor demand, and moderate price gains supports the market’s dovish lean into the December FOMC. For FX, the dollar’s next leg hinges on how the front end reacts as the data sequence unfolds—particularly payrolls and core inflation readings. Equities may treat the report as benign for risk, but lingering margin pressure from tariffs and services costs argues for selectivity. In rates, curve dynamics may remain driven by the timing and pace of prospective 2026 easing after an initial December move.
FAQ
What is the Beige Book and why does it matter for FX and rates?
The Beige Book is the Fed’s qualitative survey of economic conditions across its 12 districts, published eight times a year ahead of FOMC meetings. It shapes the policy discussion by highlighting real-time trends in demand, employment, and prices—key drivers of rate expectations, front-end yields, and the dollar.
Did the report signal recession risks?
It pointed to largely flat activity with modest declines in a few districts and modest growth in one. That’s consistent with slower momentum, not an outright contraction, though some contacts flagged rising risk of softer activity in coming months.
How could this influence the December FOMC decision?
The survey’s softer labor tone and moderate inflation backdrop align with market pricing for a December cut. Still, the Fed will weigh incoming data—jobs, inflation, and credit conditions—before finalizing the decision.
Which sectors faced the strongest wage pressures?
Manufacturing, construction, and health care reported more persistent wage pressures, even as overall wage growth remained modest and labor availability improved in many areas.
What are the main drivers of current price pressures?
Firms cited tariffs, along with rising costs for insurance, utilities, technology, and health care. Some materials prices fell due to weak demand, but many companies reported margin strain and uneven ability to pass costs through to customers.
Which regions stood out?
New York and Philadelphia reported modest declines; Dallas flagged slight weakening led by services and retail. Cleveland and Richmond saw modest growth, Chicago posted slight expansion, and Minneapolis was largely flat with firmer construction and manufacturing but weak agriculture.
