Economic Outlook Sours as Higher Rates, Inflation Bite: Fed's Beige Book

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By Yasin Ebrahim — The outlook on economic growth was souring amid pressure from higher interest rates, supply disruptions and “elevated” inflation, according to the Federal Reserve’s released Wednesday.

“Economic activity expanded modestly on net since the previous report,” though [o]utlooks grew more pessimistic amidst growing concerns about weakening demand,” the Fed said in its Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through Oct. 7.

But parts of the economy held up better than others amid varying degrees of impact from and .   

“Four Districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions,” the report said. 

inflation, which continues to run well above the fed’s 2% target, remained elevated, according to the report, though there was some optimism ahead for price increases to “generally moderate.”

The tight labor market, which has played a role in pushing wage growth higher and boosted inflation, persisted though “half of Districts noted some easing of hiring and/or retention difficulties,” the report said. 

Still, wage growth was expected to “continue as higher pay remains essential for retaining talent in the current environment,” it added.

Signs of persistent above-trend inflation has kept bets on the Fed staying the course on aggressive rate hikes. 

More than 90% of traders expect the Fed to hike rates by 0.75% in November, according to 

“Against persistent core inflation pressures, the Fed is on track to continue tightening at a faster pace than originally anticipated,” Morgan Stanley said in a note, forecasting the Fed to hike rates by 75 basis points in November, 50bps in December, and 25bps in January.