The Federal Reserve is signaling a more cautious approach to interest rate cuts, with its latest Beige Book indicating that “Economic activity was little changed since last release”.
This language dampens expectations for an aggressive 50-basis point (bps) cut in September, suggesting the central bank is not yet seeing the significant economic deterioration that would warrant such a move.
Fed Tone On Economic Activity Shifts
The Macro Strategist at The Bear Traps Report, Craig Shapiro, noted the stark difference in the Fed’s tone compared to a year ago when a 50bps cut followed a Beige Book that said, “economic activity flat or declined in most districts”.
In a post on X, Shapiro stated, “It is very rare for the Fed to acknowledge declining economy activity”.
He argues that the current, less severe language suggests a “slower rate cutting cycle” for easing monetary policy.
“It doesn’t appear that the Fed is yet seeing such a deterioration in the economy to warrant another 50bps cut in September,” Shapiro wrote.
A year ago, with the release of the Beige Book in early September ahead of the Fed’s decision to cut interest rates by 50bps, the Fed mentioned that “economic activity flat or declined in most districts.” It is very rare for the Fed to acknowledge declining economy activity and…
— Craig Shapiro (@ces921) September 3, 2025
Beige Books Observes Flat To Declining Consumer Spending
The Federal Reserve’s report, a summary of economic conditions across its 12 districts, paints a picture of a stalled economy. The national summary released on Sept. 3, found that most districts “reported little or no change in economic activity”.
The report highlighted that for many households, “wages were failing to keep up with rising prices,” leading to flat or declining consumer spending.
Labor Market Shows Signs Of Cooling
Furthermore, the labor market shows signs of cooling, with eleven districts describing “little or no net change in overall employment levels” and seven noting that firms were hesitant to hire due to weaker demand or uncertainty.
While price growth was characterized as “moderate or modest” in ten districts, concerns about inflation persist, with nearly all districts noting tariff-related price increases, Shapiro also observed that the Fed seems “to be more concerned about inflation today than they were back then.”
Economic Activity And Inflation Suggest Fed Could Be Slow
This combination of stagnant growth and persistent, albeit moderate, inflation supports the case for a more gradual approach from the Fed.
Shapiro concluded, “All of this argues for slower rate cutting cycle than not. If the economy is actually slowing more rapidly than this, the Fed will be slow and late and risk asset markets will not like it”.
Price Action
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Thursday. The SPY was up 0.15% at $644.73, while the QQQ advanced 0.23% to $571.37, according to Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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