• American businesses see modest expansion continuing
  • Small danger of recession, but trade worries widespread
  • Consumer spending is strong, wages rising

The basic notes of the US economy, success on the consumer and labor sides coupled to an apprehensive business sector remained the status quo in the latest Federal Reserve report issued on Wednesday.

“Economic activity continued to expand at a modest pace overall from mid-May through early July, with little change from the prior reporting period,” noted the anecdotal ‘beige book’ survey of the economic conditions in the 12 Federal Reserve districts.  

“The outlook generally was positive for the coming months, with expectations of continued modest growth, despite widespread concerns about the possible negative impact of trade-related uncertainty,” said the book.

The report is prepared for each FOMC meeting, in this case on July 30-31st when the central bank is widely expected to reduce the fed funds rate for the first time since September 2008.  Even though US growth appears to have ebbed in the second quarter from its 3.1% annual pace in the first three months of the year, the report should allay any fears that the economy is sliding towards recession.

Federal Reserve officials have strongly hinted that concerns about the slowing global economy, the trade dispute with China and the disruptive potential of the British exit from the EU are inclining the governors to cut the base rate. 

Market expectations based on the fed funds futures place the odds of at least a 25 basis point cut at the end of the month at a certainty with a substantial chance for a 50 point decrease from the current 2.5%.  For the September 19th FOMC the futures rate the odds of a second rate cut at 78.4%

Despite the pending rate cut the dollar has improved from its lows of two weeks ago as the sterling and the euro have been dragged down by Brexit fears and the united currency by the ECB assertion that rate action is possible should it become warranted.

In the US businesses saw consumer spending as helpful. Retails sales rose 0.4% in June, much better than the 0.1% forecast, and have now increased for four straight months and five out of the last six.  Sales in the control group category that the government uses to calculate the consumption component of GDP climbed 0.7% more than double the 0.3% prediction.  They have also been positive for four months in a row and five of the last six.  

Good wage growth, job creation and low unemployment are underpinning consumer optimism.  Wages expanded at 3.1% annual rate in June and business hired 224,000 new employees producing a 3.7% jobless rate, the lowest in five decades. Consumer confidence is healthy though lower than its very high levels of last year.


Inflation remains muted with the core PCE index at 1.6% in May and the overall rate at 1.5%.

Manufacturing executives voiced concerns about the trade argument with China, as they have for over a year and many said that new workers were difficult to find.

In his testimony before Congress last week, Fed Chairman Jerome Powell signaled that the bank is ready to cut rates.  Markets have taken this a promise and at this point it might be difficult for the FOMC not to keep its intention.  Whether a reduction would be the beginning of a rate cycle is, with the economy far from needing support, an open question, whatever the futures might say.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD surges above 1.1100 as Trump announces steps against China

EUR/USD is trading above 1.1100, up on the day. President Trump said he orders companies to search Chinese imports for drugs. Earlier he criticized Powell's lack of action. 


GBP/USD jumps above 1.2250 on USD weakness

GBP/USD is trading close to the monthly highs above 1.2250 as the US dollar falls following Powell's hint of cutting rates and Trump's angry response. 


USD/JPY plummets to ten-day lows below 106 as Trump goes berserk on Twitter

The USD/JPY came under strong selling pressure in the last hour and erased nearly 100 pips as US President Donald Trump's latest rant on Twitter forced investors to seek refuge and ramped up the demand for safe-haven JPY. 


Powell powerless against Trump's trade wars – US braces for recession, USD set to move

"The most powerful central banker in the world" – is how we and others characterize Fed Chair Jerome Powell. While that may be true – monetary policy is reaching its limits – especially in the face of a trade war.

Read more

Gold gains more than $30, eyes 2019 highs on Trump’s tweet

Gold continues to rise sharply amid concerns about the impact of the escalation in the US-China trade war. The demand for safe-haven assets emerged over the last hours, leading to a rally in the yellow metal. 

Gold News