Interest rate cut expectations dampened! The Beige Book states that the U.S. economy shows slight improvement but inflation resurfaces

According to the Zhitong Finance APP, on Wednesday, the Federal Reserve's latest release of the "Beige Book" showed that the U.S. economy experienced "slight growth" between late May and early July, an improvement compared to the decline in activity in some regions earlier. However, accompanying this growth is an increasingly evident inflationary pressure, especially under the new round of tariff policies from the Trump administration, which is intensifying the cost pressures faced by businesses, leading to heightened market concerns about a rebound in inflation.

Atlanta Federal Reserve President Raphael Bostic publicly stated after the release of the Beige Book that he still prefers to keep current interest rates unchanged, noting that recent inflation data has released "worrisome signals." He emphasized, "We are seeing signs of rising inflationary pressures in the economic fundamentals, which is indeed concerning." Regarding current policy choices, he believes, "Now is not the time to adjust interest rates; I would choose to wait."

The Beige Book indicates that all 12 Federal Reserve districts reported varying degrees of economic activity growth, but the overall pace is moderate, and businesses generally hold a cautious outlook for the future. Uncertainty remains one of the main themes, although the frequency of related expressions has decreased (from 80 times in June to 63 times in July), concerns about the economic and policy outlook have not dissipated.

At the same time, all 12 districts reported price increases, particularly in the manufacturing and construction sectors, where businesses are generally affected by rising raw material costs due to tariffs. The report noted, "Many businesses have passed some of the costs onto consumers through price increases or additional fees, but some businesses have chosen not to raise prices due to increased customer price sensitivity, leading to compressed profits."

Particularly noteworthy is that the Trump administration recently proposed to impose a new round of tariffs on goods from certain trading partners starting August 1, which has intensified policy uncertainty and heightened businesses' concerns about future price trends. In the previous June Consumer Price Index (CPI) data, some goods had already shown signs of price increases triggered by tariffs.

Although the market widely expects the Federal Reserve to begin cutting interest rates at the September meeting, the Beige Book and Bostic's statements release a more cautious signal. Bostic pointed out that inflation data in recent months has been close to the target range set by the Federal Reserve, but the latest CPI report "released a completely different signal," indicating that inflation may be at a "turning point" of rising again.

Additionally, the Beige Book emphasizes that multiple industry contacts expect cost pressures to persist in the coming months, significantly increasing the likelihood of accelerated price increases by the end of this summer. Due to the ongoing focus on inflation, Federal Reserve officials have so far refused to cut interest rates, fearing that premature easing policies could trigger a new round of price increases.

Bostic's statements are seen as representative of the "wait-and-see" faction within the Federal Reserve. He has not completely ruled out the possibility of future policy adjustments but prefers to wait for further data clarification at this stage. His attitude also resonates with the Federal Reserve's tone of "maintaining higher rates for longer."

The challenges currently faced by the Federal Reserve go beyond economic data. After President Trump made comments about possibly firing Federal Reserve Chairman Jerome Powell, although he quickly denied any plans, market concerns about the independence of the Federal Reserve have once again intensified. There is a general belief that political factors may further interfere with the Federal Reserve's policy judgments On the other hand, market expectations for the Federal Reserve's interest rate cuts have also begun to diverge. Although the interest rate futures market still bets on a rate cut in September, signals from the Beige Book and Bostic have poured cold water on this expectation. With price pressures resurfacing, the Federal Reserve has reason to hold steady and wait for a clearer inflation trend