Jan 16, 2020

Fed’s beige book shows uncertainty continues to hurt businesses

Illustration: Eniola Odetunde/Axios

The Fed released its latest beige book on Wednesday and the biggest takeaway was that despite the excitement for the phase one trade deal, "tariffs and trade uncertainty continued to weigh on some businesses."

What it means: The beige book gathers anecdotal responses from businesses around the country to get an idea of how the economy is doing.

  • "In short, any positive burst in sentiment resulting from the accord signed [yesterday] has either not materialized, or is still to come," BMO Capital Markets rates strategist Jon Hill wrote in a note to clients.

What they're saying: “Several [businesses] increased prices of final goods but struggled with low profit margins due to tariffs on raw materials,” the report said.

  • Manufacturing activity was "essentially flat," and the report contained a number of what Hill described as "ominous details."
  • Hiring is slowing significantly, and there are some reports of declining prices.
  • Some manufacturing companies even reported job cuts.

Yes, but: The expectation of the trade deal did spur some hope. The Chicago Fed district said it had “boosted farmers’ outlooks” while the Dallas Fed said “outlooks generally improved, with reduced trade uncertainty boosting optimism.”

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Federal Reserve leaves interest rates on hold

Jerome Powell. Photo: Sarah Silbiger/Xinhua via Getty

The Federal Reserve said on Wednesday that interest rates would remain between the target range of 1.5% and 1.75%.

Why it matters: Fed chair Jerome Powell said developments in the global economy since the last Fed meeting — namely threats posed by the coronavirus outbreak — have not changed the central bank's wait-and-see approach.

Go deeperArrowUpdated Jan 29, 2020

China to cut tariffs on $75 billion of U.S. goods

Chinese Vice Premier Liu He and President Trump at the White House on Jan. 15. Photo: Mark Wilson/Getty Images

China will halve tariffs on about $75 billion of imports from the U.S., effective Feb. 14, the country's finance ministry said in statements posted to its website Thursday.

Why it matters: This is another sign of tensions easing in the prolonged trade war between the U.S. and China that's brought major uncertainty to the markets and hurt the U.S. manufacturing industry and farmers.

The market is expecting multiple rate cuts in 2020

Data: CME Group; Note: Chart does not include expectations below 5% for a rate hike in 2020; Chart: Andrew Witherspoon/Axios

Just four days into February, traders have thrown out the Fed's guidance that it will remain on the sidelines in 2020, and lined up bets for multiple U.S. interest-rate cuts.

What's happening: Fed fund futures prices show that as the coronavirus outbreak has worsened, expectations are rising that the Fed will take action, as policymakers did last year when the U.S.-China trade war began to ravage the manufacturing, trade and transportation industries.