CIO expects the FOMC to use the January meeting to open the door to rate cuts at future meetings. (UBS)

Some key quotes from the report:


  • “A majority of the twelve Federal Reserve Districts reported little or no change in economic activity... Contacts from nearly all Districts reported decreases in manufacturing activity. Districts continued to note that high interest rates were limiting auto sales and real estate deals; however, the prospect of falling interest rates was cited by numerous contacts in various sectors as a source of optimism... Overall, most Districts indicated that expectations of their firms for future growth were positive, had improved, or both.”
  • “Seven Districts described little or no net change in overall employment levels, while the pace of job growth was described as modest to moderate in four Districts...[N]early all Districts cited one or more signs of a cooling labor market... Firms from many Districts expected wage pressures to ease and wage growth to fall further over the next year.”
  • “Six Districts noted that their contacts had reported slight or modest price increases, and two noted moderate increases. Five Districts also noted that overall price increases had subsided to some degree from the prior period... Increased consumer price sensitivity had forced retailers to narrow their profit margins and to push back in turn on their suppliers' efforts to raise prices... Three Districts noted that their firms were expecting price increases to ease further over the next year, while four Districts' firms anticipated little change.”

In data releases yesterday, retail sales were stronger than expected in December, rising 0.6% month-over-month, while industrial production edged up 0.1%. The NAHB survey of homebuilders improved to 44 in January, up from 37 in December. The Atlanta Fed's GDPNow tracking estimate of 4Q23 GDP growth was revised up to 2.4%; the official preliminary estimate will be released on 25 January. Other key indicators ahead of the FOMC meeting on 30–31 January include JOLTS job openings for November and the Employment Cost Index for 4Q23.


In our view, with inflation on a slowing trend, there is little reason for the Fed to consider additional rate hikes. We expect the FOMC to use the January meeting to open the door to rate cuts at future meetings. Our base case is that the first cut will be in May, with a total of 100 basis points of cuts by the end of 2024.


Main contributor - Brian Rose


Original report - Beige Book suggests gradual rate cuts, 17 January 2024.