The Federal Reserve Beige Book shows softening in consumption and employment, JP Morgan changes stance and says the bank may continue cutting interest rates in December.

The latest Beige Book released by the Fed shows that consumer spending is weak, labor market momentum is waning, further strengthening market expectations for a Fed rate cut in December. Against the backdrop of delayed key economic data due to the government shutdown and the Fed entering a quiet period before the meeting on December 9-10, this report has become one of the few important reference signals for policymakers and investors. The Beige Book report states that most areas experienced a "slight decrease" in employment, a significant change from the previously robust growth. Companies in areas such as New York, Dallas, and Minneapolis reported slight layoffs. While large-scale layoffs are few, recruiting activities are also becoming more conservative. Many companies reported that recruitment has become easier, with a decrease in demand for temporary workers, implying a further softening of labor demand. Wage growth remains moderate, with many areas reporting that starting wages are leveling off. However, despite the increase in discussions about layoffs, initial jobless claims in the U.S. remain resilient. For the week ending November 22, initial claims fell by 6,000 to 216,000, the lowest level since February; continued claims slightly rose to 1.96 million, but remain within the normal fluctuation range for this year. The Beige Book also shows that nationwide consumer spending is weakening, with retail and non-essential consumption slowing in many areas. Some retailers attribute the slowdown to the government shutdown, while car dealers mention a significant decline in electric car sales due to the expiration of federal tax credits. Although high-end consumption remains relatively robust, there is a general observation in the industry of an increase in "cautious discretionary spending" by households, in contrast to the continued strong consumption by high-income groups earlier this year. The latest data shows that retail sales only increased by 0.2% from August to September, significantly lower than the economists' expected 0.4%. Despite the cooling of both employment and consumption, the Beige Book also points out that inflationary pressures are moderate in most areas, with the manufacturing and technology industries still showing localized resilience. The report concludes that "overall economic activity has not changed much compared to the previous report." On the path to rate cuts, Fed officials still have differing opinions. Some decision-makers are concerned that inflation remains relatively high, and an early rate cut may hinder its further decline to the 2% target; while others emphasize the greater risks brought by a slowdown in the labor market, especially as unemployment rises and consumption weakens. Last week, New York Fed President Williams stated that there is still room for further adjustments in the short term, prompting a sharp increase in market expectations for rate cuts. Meanwhile, Boston Fed President Collin and Chicago Fed President Guerlsbi released more cautious signals. With data scarcity and the quiet period approaching, the market is highly dependent on the tone of the Beige Book for repricing. The probability of a rate cut in December has soared from around 30% a month ago to over 85% this week. In this context, the latest statement from JPMorgan's team of economists indicates that they expect the Fed to cut rates in December, after briefly considering postponing the cut to January next year. Chief U.S. economist Michael Feroli pointed out that recent remarks by key officials like Williams have led the bank to revise its forecast. JPMorgan's latest expectation is that the Fed will cut rates by 25 basis points in both December and January. Feroli stated in the research report, "Although the December meeting is still a close call, the latest round of official speeches has shifted the balance more towards action in December." The current interest rate swap market also reflects a similar view, with traders pricing in an approximately 80% probability that the Fed will cut rates by 25 basis points at the upcoming meeting, significantly higher than the previous level of less than 30%.