Federal Reserve Beige Book Reveals Worrying Economic Activity Decline

Summary:

The latest Beige Book has just landed, offering a snapshot of economic conditions across the Fed’s 12 districts. A slight decrease in overall economic activity.

Understanding the Federal Reserve’s Beige Book

Before diving into the specifics, let’s clarify what the Beige Book is. Published eight times a year, roughly two weeks before each Federal Open Market Committee (FOMC) meeting, the Beige Book provides anecdotal information on current economic conditions by district. It’s compiled from reports by Reserve Bank contacts, gathered through interviews with business contacts, economists, market experts, and other sources.

Think of it as a qualitative report offering on-the-ground insights that complement the quantitative data the Fed analyzes. It covers various sectors, including consumer spending, manufacturing, real estate, and labor markets. The Federal Reserve uses this information to help inform its monetary policy decisions, making it a closely watched report by economists and market participants alike.

Decoding the Findings: What Did the Report Reveal About Economic Activity?

The key takeaway from the recent report is the slight decline in overall economic activity. This isn’t a widespread collapse, but rather a subtle cooling reported across several regions. Here’s a breakdown of the general picture:

● Overall Trend: Most districts reported either no change or slight declines in activity. This suggests a broad-based, albeit gentle, slowdown rather than an isolated issue.

● Mixed Regional Performance: While the national picture showed a slight dip, the report highlighted variations. Some regions noted improved conditions or positive outlooks, while others saw activity soften further or expressed concerns about the future. This divergence indicates uneven economic performance across the country.

● Sector-Specific Weakness: Certain sectors might be experiencing more pronounced slowdowns than others, although the initial summary points to a general moderation rather than deep distress in any single area.

This reported dip in economic activity is a signal that previous economic momentum might be fading, which has direct implications for employment, consumer spending, and overall business health.

Inflation Watch: What Does the Beige Book Say About the Inflation Rate?

Another critical component of the Beige Book is its assessment of prices and wages, which provides insight into the current inflation rate. The latest report suggests that inflation is expected to continue at a moderate rate.

Why is this significant? It indicates that while inflation may have peaked from its highest levels, it hasn’t yet fallen back to the Fed’s target rate. The persistence of a moderate inflation rate means:

● The cost of goods and services is still rising, albeit perhaps at a slower pace than before.

● Businesses may still face pressure from higher input costs, potentially impacting their profitability.

● Crucially, it suggests that the Federal Reserve’s fight against inflation is not yet over.

This persistent moderate inflation rate complicates the Fed’s job. They are balancing the goal of bringing inflation down with the risk of causing a significant recession by tightening monetary policy too aggressively. The Beige Book’s qualitative data on price pressures provides valuable context for this delicate balancing act.

Challenges and Opportunities

The slight decline in economic activity presents challenges, such as potential recession risks and continued market uncertainty. However, it also presents potential opportunities. If the economy slows significantly, it could eventually lead the Federal Reserve to ease monetary policy, which has historically been a tailwind for risk assets, including the crypto market.

The persistence of the inflation rate remains a challenge, forcing the Fed to maintain a cautious stance. Navigating this environment requires patience and a clear understanding of the forces at play.

Conclusion

The Federal Reserve’s latest Beige Book offers a valuable, albeit slightly concerning, look at the U.S. economy. The report of a slight decline in overall economic activity, coupled with expectations for a moderate inflation rate, paints a picture of an economy that is cooling but still facing price pressures. These factors are highly relevant to the crypto market, influencing everything from investor sentiment to expectations around future Fed policy.

While the Beige Book doesn’t offer specific crypto trading signals, it provides essential context for the macroeconomic environment in which digital assets operate. Staying informed about these reports and understanding their potential impact is a key part of navigating the complexities of the current market landscape.

Source: CryptoSlate

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Daniel Carter

Central Bank

Economic

Base salaries rose by 2.2% in April from a year ago, accelerating from the previous month's revised 1.4% gain, the labor ministry reported Thursday. Nominal wages increased 2.3%, compared with economists' consensus estimate of a 2.6% gain. A more stable measure of wage trends that avoids sampling problems and excludes bonuses and overtime showed wages for full-time workers climbed 2.5%, staying at or above 2% for a 20th consecutive month.

On the downside, real cash earnings dropped 1.8% from a year earlier, falling more than the forecast 1.6% decline.

Growth in nominal wages is a key component of the virtuous economic cycle long sought by the BOJ. Authorities are looking for indications that rising pay is feeding into demand-led price gains as they mull the future course of policy. Thursday's data will likely keep Governor Kazuo Ueda and his board on track for another rate hike this year if conditions allow.

The outlook for wages is generally bright after annual negotiations between unions and companies resulted in pledges from employers to increase pay by more than 5% for a second straight year. Some workers saw their largest pay increases in over three decades, according to the latest tally by the nation's biggest trade union federation Rengo. Those gains will gradually start showing up in payroll stubs from around June, BOJ research has shown in the past.

A key driver behind wage growth has been the sustained tightness in the labor market, with the unemployment rate staying below 3% for more than four years. In its latest outlook, the central bank suggested that the growth rate of nominal wages is likely to remain elevated for the time being, citing continued labor shortages and limited slack in supply.

The BOJ is expected to hold its benchmark rate steady when it next sets policy on June 17, with the market's focus likely to be the bank's updated plans for bond purchases as it proceeds with quantitative tightening.

To be sure, some economists have warned that US President Donald Trump's tariffs could squeeze corporate profits, limiting the ability of some firms to offer generous compensation to workers. The BOJ also noted in its outlook report that the pace of nominal wage growth is likely to slow, affected by the decline in corporate profits, without providing context.

Meanwhile, the continued decline in real wages underscores persistent inflationary pressures, clouding the trajectory for domestic demand. In April, inflation accelerated to the fastest clip in more than two years, driven by higher food and energy costs. The trend will likely persist for at least the next few months, as indicated by data for the capital.

While nominal wages have steadily risen over the past four years, real earnings have only posted gains in four of those months. Economists widely expect real wages to stay subdued for some time before they begin to increase steadily.

Stagnant disposable income is damping consumer sentiment and weakening household spending, raising concerns that Japan could slip into a technical recession. In the first three months of the year, the world's fourth-largest economy shrank mainly due to weaker trade and sluggish consumption. A revised GDP figure due Monday is expected to show GDP remained in contraction.

Falling take-home pay has also fueled public dissatisfaction, adding pressure on Prime Minister Shigeru Ishiba as a critical upper house election looms in July. In response, his administration has unveiled measures aimed at both curbing inflation and boosting wages.

Among the latest steps is a sector-specific plan to raise minimum wages, mostly focusing on enhancing labor productivity through digitalization and automation. The plan is a possible path toward the target of raising the minimum hourly wage to ¥1,500 ($10.42) within five years, which would require annual increases of over 7% from the current ¥1,055.

In the same policy package, Ishiba's government set a goal of reaching 1% annual gains in real wages by the fiscal year starting in April 2029.

Source: Bloomberg Europe

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

Political

Central Bank

A red baseball cap sits above Michelle Bowman’s filing cabinet in her office at the US Federal Reserve in Washington. It’s emblazoned with the words “make community banks great again.” The TV in her office is tuned to Fox News, and the self-described workaholic has a sticky note on her door asking visitors to knock loudly because the door is heavy.

Already a Fed governor, Bowman will become one of the central bank’s key leaders, in charge of banking regulation. The Senate Banking Committee voted along party lines to advance her nomination as vice chair for supervision, and the full Republican-controlled chamber gave her its nod on Wednesday. The industry has praised Bowman’s nomination, highlighting her drive to scale back a massive bank-capital proposal that it says will hurt lending, erode its competitive edge and potentially reduce economic growth. Critics are concerned that she’s too focused on what banks want — at a time when the White House is embarking on a deregulatory drive, threatening the Fed’s independence and introducing tariff-fueled economic uncertainty that could put the financial system under pressure.

The timing of her nomination was due to Michael Barr’s surprise announcement that he would leave the job. Barr stepped down in February while remaining a governor, even though his term as vice chair extended to July 2026. He wanted to avoid a protracted legal fight over a possible demotion by Trump.

Bowman, who asks everyone she meets to please call her “Miki,” quickly made her interest in the job clear. She talked to state bank regulators who had lobbied to get her onto the Fed board in 2018, according to people familiar with the matter who didn’t want to be identified discussing the private communications. She asked some of them to signal to Treasury Secretary Scott Bessent that he should push Trump to fill Barr’s seat rather than leave it vacant, and pitched herself as a regulatory insider who wouldn’t even need to wait for Senate confirmation to get started. Industry players like the Independent Community Bankers of America and the American Bankers Association also rallied behind her. Bowman herself points to the experience she has gained in an eventful last seven years.

“I’ve seen a lot since I’ve been here at the Fed,” says Bowman, 54. “We’ve seen the entire shutting down of the economy and restarting it again.”

She will have to navigate a position that has been an awkward fit for the Fed, an agency that strives to remain as apolitical as possible in setting monetary policy. The supervision job was created by the Dodd-Frank Act in response to the 2008 financial crisis. Chair Jerome Powell himself has said that placing the burden of developing recommendations on a single person rather than the entire Fed board has made bank policy more volatile.

Bowman has deep roots in small-town banking. Born in Hawaii, she spent time living in Germany as a part of a military-kid upbringing, and worked in the UK. But home has always been rural Council Grove, Kansas, about 90 miles northeast of Wichita. “The closest town is about 35 miles away with a 2,200 population,” Bowman says. In Council Grove, she worked at Farmers & Drovers Bank, which her great-great grandfather helped charter in 1882, before becoming the Kansas state banking commissioner in 2017. A lawyer, she also previously worked in Washington as counsel to US House committees and as a policy adviser in the Department of Homeland Security during the George W. Bush administration.

She was first nominated to the Fed board by Trump in 2018, to fill a position designated for an expert on community banks, which have long been losing market share to bigger lenders. Since then, Bowman has criss-crossed the country — by her count visiting all but four states. She has given detailed speeches to community banking groups on how vital these lenders are to the economy. Her travels across the US and to five continents rival only Powell, among her board colleagues, in the number of engagements. Over time, she has become more vocal, often supporting easing regulations that she says are too burdensome for the smallest banks.

Her missives on regulation were often a foil to Barr’s attempts to significantly increase capital requirements for banks — that is, to have them further pad their financial cushions, depending on the risks they take, so they can absorb losses during a crisis. “My greatest concern about Governor Bowman is that I haven’t seen any daylight between her publicly stated positions and the wish list of the largest banks for lower capital requirements and less demanding supervision,” says Arthur Wilmarth, a professor emeritus at George Washington University Law School who was a consultant to the Financial Crisis Inquiry Commission created by Congress. That could change if she prioritizes coalition-building with other members of the board, he says.Bowman says regulation already has put banks on firmer ground. “We’ve created a much stronger, safer, sound banking system,” she says.

‘Thorny Issues of Fed independence’

The vice chair job is probably the most demanding in all of financial regulation, says Graham Steele, a Fed alumnus who also served as a Biden-era Treasury official. He adds that it’s a step up in difficulty from being a single governor with one vote and giving speeches on personal views. “That person has always had to balance a complex and delicate set of policy, political and procedural issues while finding consensus between and across the views of the other banking agencies and the Fed’s board members,” Steele says. “In this administration, they now also have to navigate thorny issues of Fed independence with a White House that’s seeking to bring independent agencies under political control, including the Fed’s regulatory functions.”

As a board member, Bowman will also continue to have a voice in monetary policy. In that realm, she has been somewhat more hawkish on interest rates than her colleagues. She cast the first dissenting vote by a governor in almost 20 years when she voted against the Fed’s decision to cut interest rates by half a percentage point in September. That was the first cut since the start of the pandemic; Bowman argued that a smaller, quarter-point cut would have been more appropriate given that inflation was still above the central bank’s 2% target.

She has a reputation for toughness. People who asked not to be identified discussing internal Fed matters said that tense interactions between Bowman and Fed staff led to a new practice where more senior officials with titles brief her and other governors on policy matters. But some observers see her style as a benefit. She dives into the details and makes sure she understands an analysis and its policy implications, says Mona Elliot, a former Fed official who now advises clients at Patomak Global Partners. “Ultimately, what the governors care about is really understanding the potential impact of the decisions that they’re making,” said Elliot, who briefed Bowman at the beginning of her time at the Fed in 2018.Randal Quarles, who held the supervision role before Barr after being chosen by Trump in 2017, says the highly qualified staff at the Fed has a culture that can sometimes be “too sure of itself” and that this is ripe for change.

Bowman has been willing to take on high-profile fights. Shortly after Silicon Valley Bank collapsed in 2023, she started calling for an independent review into what failings led to the lender’s fast fall. Barr did his own review, which he called an “unflinching look” at problems in both the supervision of the bank and the regulatory requirements for an institution of that size. Some critics said the details were vague, and Bowman has insisted the report is insufficient in terms of full accountability and transparency. She has said she wants to launch a third-party review.

Covid Lockdowns

During the 2020 Covid-induced lockdowns, Bowman was anxious about the Fed not being able to read the economy as the government was offering loans to businesses via banks using the Paycheck Protection Program without a lot of guidance or directives. She began a campaign to reach as many of those lenders as possible. Over the next year, she managed to talk to more than 220 community-bank chief executive officers in 30-minute phone calls. “I think that really helped allow them to engage with confidence and continue to be the greatest lenders in that program,” she says.

Before that campaign, she worked to get her arms around the Fed’s consumer compliance program. After hearing complaints about banks waiting three to five years for an exam report, she championed an effort to make the exam process more timely, while preserving its effectiveness.

To help advise her, Bowman has turned to the banking world for three staff hires, who recently joined the agency’s Division of Supervision and Regulation. Two sweeping proposals are on her radar: a landmark Biden-era bank-capital plan known as Basel III endgame and long-term debt requirements that would affect all lenders with more than $100 billion in assets. As originally drafted, the Basel plan would have hiked the biggest US banks’ capital requirements by 19%. The Fed walked it back after fierce industry opposition. Bowman is widely expected to support dramatically easing the requirements. She also plans to rescind the proposal to bolster long-term debt requirements, according to people familiar with the matter.

Bowman sided with the industry on its calls to increase the transparency of the Fed’s stress tests, which gauge how large banks would fare during a hypothetical recession. And she’s working with other Trump regulators on potential changes to a rule—the so-called supplementary leverage ratio—that has constrained banks’ trading in the $29 trillion Treasuries market.

Bowman has said she wants to keep the Fed’s experienced ranks of bank supervisors and examiners, arguing that they’re critical to the Fed being able to carry out its regulatory responsibilities. Already, the Trump administration is set to shrink the staff of other financial regulators by more than 2,300, including examiners. The Fed plans to reduce its workforce by about 10% in the next couple of years, but it isn’t clear whether that would include examiners.

“Our examinations staff are of the most importance when we’re talking about how we execute our responsibilities under supervision for the safety and stability and soundness of the banking system,” Bowman said during her Banking Committee nomination hearing in May. “If I were to do a review of our supervision and regulation division, should I be confirmed, I would certainly be very sensitive to the fact that we need to be able to fully and effectively implement our responsibilities for bank regulation.”

Source: Bloomberg

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Daniel Carter

Central Bank

Political

Bowman, a fifth-generation banker and Republican, has long touted the need for more “tailored” oversight in her speeches. She has signaled significant changes in regulatory priorities and has a friendlier relationship with the bank industry than her predecessor, Michael Barr.

Barr resigned from the role earlier this year. She frequently countered him on issues including bank oversight, stress-test reforms and capital rules.

Bowman has said that watchdogs should be better aligned in their goals for the financial system. That effort has already started to take shape, with Treasury Secretary Scott Bessent hosting Bowman and other regulators for private meetings in a bid to streamline oversight, according to people familiar with the matter. Bowman has also hired advisers from lending giant Goldman Sachs Group Inc., Wall Street legal heavyweight Davis Polk & Wardwell and big-bank lobbying powerhouse, the Bank Policy Institute.

Bowman has said that she will work with officials at the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to re-propose a landmark US bank-capital proposal known as Basel III endgame. She was a sharp critic of the plan as originally drafted, which would have hiked the biggest banks' capital requirements by 19% to buffer against losses and a financial crisis.

She is also working with other regulators on potential changes to the supplementary leverage ratio. Critics have argued the SLR has limited banks' purchases of traditionally safer instruments like US Treasuries. Bessent said in May that officials may move this summer on easing that capital rule.

Dennis Kelleher, president of Washington-based consumer advocacy group Better Markets, said Bowman's role is to protect the jobs and savings of everyday Americans from the risks of Wall Street.

“Unfortunately, Bowman has the opposite views: while claiming to care about Main Street, she enthusiastically and unequivocally supports those banks' priority of deep, broad and mindless deregulation,” Kelleher said.

But industry groups, like the Independent Community Bankers of America, said in a statement that Bowman's real-world experience gives her a keen understanding of how certain regulations applied universally — regardless of a bank's complexity or risk profile — impedes access to credit for those who need it most.

Bowman told lawmakers in April that regulation has become overly complicated and redundant. She said she would “prioritize reforming and refocusing supervision, restoring regulatory tailoring, ensuring a viable path for innovation in the banking system, and promoting transparency and accountability” if confirmed.

Bowman, who previously served as the state bank commissioner of Kansas, was nominated in 2018 by Trump to become a member of the Fed's board.

Source: Bloomberg Europe

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Manuel

Economic

Central Bank

The European Central Bank is almost certain to cut interest rates again on Thursday and keep all options on the table for subsequent meetings, even as the case grows for a pause in its year-long easing cycle.

The ECB has cut rates seven times in 13 months as inflation eased from post-pandemic highs, seeking to prop up a euro zone economy that was struggling even before erratic U.S. economic and trade policy dealt it yet another blow.

With inflation now safely in line with its 2% target and a cut flagged by a host of policymakers, Thursday's decision will be uncontroversial, with the focus on what signals ECB President Christine Lagarde might send about policy ahead.

Investors are already pricing in a pause in July, and some conservative policymakers have advocated a break to give the ECB a chance to reassess how exceptional uncertainty and policy upheaval both at home and abroad will shift the outlook.

"Getting the hawks to support a June cut may require a hint of conditional patience: an implicit willingness to pause in July and wait until September before easing again, as long as there were no major downside surprises in the meantime," Deutsche Bank analysts said in a note.

The case for a pause rests on the premise that the short- and medium-term outlooks for the 20-country currency bloc differ greatly and may require a different policy response.

Inflation could dip in the short term, possibly even below the ECB's target, but increased spending and higher trade barriers could add to price pressures later.

The added complication is monetary policy impacts the economy with a 12-to-18 month lag, so that support approved now could be giving help to a bloc that no longer needs it.

A cut on Thursday would take the deposit rate to 2.0%, which the ECB considers "neutral" - no longer holding back the economy but not yet stimulating it either.

DIVERGENT OUTLOOK

Acknowledging near-term weakness, the ECB is expected to cut both its growth and inflation projections for next year.

U.S. President Donald Trump's trade war is already damaging activity and will have a lasting impact even if an amicable resolution is found, given the hit to confidence and investment.

This sluggish growth, along with lower energy costs and a strong euro, will curb price pressures.

"Uncertainty around tariffs is extremely elevated, and that is not conducive to firms taking longer-term decisions around investment and hiring," Investec economist Sandra Horsfield said. "In the near term (that) will be a disinflationary force in its own right, quite irrespective of where tariffs eventually settle."

Most economists think inflation could fall below the ECB's 2% target next year, triggering memories of the pre-pandemic decade when price growth persistently undershot 2%.

Further ahead, the outlook changes significantly.

The European Union is likely to retaliate against any permanent U.S. tariff, raising the cost of international trade. Firms may meanwhile relocate some activity to avoid trade barriers but changes to corporate value chains are also likely to raise costs.

Higher European defence spending, particularly by Germany, and the cost of the green transition could add to inflation while a shrinking workforce as the bloc's population ages will keep wage pressures elevated.

"We think the window for ECB rate cuts will close over the late summer," UBS economist Reinhard Cluse said.

"We believe the ECB might have to hike rates again in late 2026 to counter rising inflation pressure in 2027, amid a euro zone - German - labour market that is subject to structural tightness during the demographic transition."

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Cryptocurrency

Central Bank

Brazil’s Central Bank plans to treat transaction data from its central bank digital currency (CBDC) infrastructure, called Drex, as a direct input for setting the country’s interest rate benchmark.

Central bank executive Henrique Videira said on June 4 at the Token Nation conference in São Paulo that every payment and asset transfer recorded on Drex’s distributed ledger will generate a time-stamped, structured entry.

By aggregating those entries at the group level, the monetary authority expects to measure consumption shifts, liquidity pockets, and sector performance in near real time.

Staff economists would feed the metrics into existing output gap and credit supply models before each Monetary Policy Committee meeting.

Videira said: “We want a faster read on economic activity than tax receipts or bank statements provide.”

He added that Drex stores only hashed personal identifiers, which prevents individual tracing.

Real-time ledger data for rate decisions

The initiative extends the bank’s strategy of supplementing survey and banking system indicators with on-chain evidence.

Videira outlined a workflow in which anonymized Drex data passes through internal filters, merges with wholesale settlement flow on the same ledger, and appears on policy dashboards that track spending by merchant category, collateral movements, and regional trade volumes.

When output falls below potential or liquidity tightens, the board could weigh a rate cut earlier than usual. Conversely, when spending runs hot, the same dashboards could support a quicker tightening vote.

The executive framed the approach as an analytic upgrade rather than a delegation of policy to an algorithm.

Videira also detailed a credit access channel. Borrowers with limited bank history could authorize lenders to review their Drex cash flow records, providing auditable evidence of income without requiring pay stubs.

He said the central bank plans to publish a consultation paper on that model this year, noting that the ledger keeps user names off-chain while preserving transaction integrity through consensus validation.

Blockchain and AI

The bank wants universities, startups, and public agencies to build analytics layers on Drex. Videira stated that large language models allocate a substantial portion of their computational budget to processing unstructured inputs.

A ledger that labels fields, such as payer type and merchant code, enables the engines to proceed directly to pattern recognition. It added that agricultural agency Embrapa and public health institutes could query anonymized datasets to improve crop yield forecasts or disease spread simulations.

The Drex pilot entered limited production in March, with 16 institutions testing tokenized public debt and deposit tokens. Full rollout depends on congressional approval of the proposal introduced last month.

Videira closed by noting that policy ownership remains with the monetary board, but the transaction layer belongs to society.

Source: Cryptoslate

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Commodity

Energy

Oil fell on signs Saudi Arabia wants another major production increase, raising expectations that a glut of crude will form this year.

West Texas Intermediate slid 0.9% to settle below $63 a barrel, paring losses of almost 2% after Bloomberg News reported that the de facto OPEC leader is open to additional significant output hikes in a bid for market share. The kingdom wants the group to add at least 411,000 barrels a day in August and potentially September, ideally as quickly as possible to take advantage of peak summer demand, according to people familiar with the matter.

The cartel’s intentions have already been well telegraphed, despite the market’s knee-jerk reaction, said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group.

“Still, it shows the course that OPEC is currently on will likely continue,” she added.

The development helped jolt crude out of a listless trade on mixed demand data. US government figures showed the country’s crude stockpiles fell 4.3 million barrels last week, raising expectations of near-term tightness. Meanwhile, gasoline demand declined.

Oil rose at the start of the week after a decision by OPEC+ to raise production in July was in line with expectations. Saudi Arabia led increases in OPEC oil production last month as the group began its series of accelerated supply additions, according to a Bloomberg survey. Nevertheless, the hike fell short of the full amount the kingdom could have added under the agreements.

Saudi Aramco, meanwhile, cut its oil prices to Asia after OPEC+ continued with its outsized output increases for a third month. The decrease is smaller than a 35-cents-a-barrel reduction anticipated in a survey of refiners and traders.

Prices are still down about 12% this year on fears around a looming supply glut, while traders continue to monitor US trade tariffs as President Donald Trump said his Chinese counterpart is “extremely hard” to make a deal with.