Fed Chair Waller stated that if inflation does not clearly recede, further rate hikes remain possible, and pledged to achieve the 2% target—gold plunged sharply. How should we interpret this statement?

Waller’s hawkish speech at Jackson Hole took place some time ago. Domestic interpretations have been relatively consistent: This was a hawkish speech, but its implicit message does not signal a genuine shift toward hawkishness; or, rate hikes remain an option—but are not imminent; or, the speech aims to restore the Fed’s credibility. I have long held that domestic institutions—including top-tier research bodies—naturally harbor a perspective bias when analyzing U.S. financial markets. Across the Pacific Ocean, China and the U.S. differ fundamentally in economic structure, market logic, and modes of thinking. After the release of the September 3 ISM Services PMI data, it became clearer why domestic financial institutions interpreted Waller’s remarks moderately, while Wall Street’s leading investment banks swiftly adjusted their forecasts. Bank of America, Barclays, and others collectively turned hawkish. Meanwhile, CME’s (Chicago Mercantile Exchange) FedWatch Tool registered an immediate shift: the probability of a 25-basis-point hike in September rose from roughly 35% before the speech to nearly 60% immediately afterward. The U.S. economy’s core lifeline is the services sector—which accounts for a very high share of GDP—making the Services PMI the true forward-looking barometer of the broader economy. This latest reading is highly divergent—even bizarre. The composite index stood at 55.4, new orders at 60.9, yet the employment index fell to just 47.8. Most critically, the prices-paid sub-index surged to 72.6—a level trending sharply upward. Historically, such a reading has only occurred during periods of extreme overheating and runaway inflation—namely, 2005, 2008, and 2022. The Services Prices-Paid Index serves as an ultra-short-term leading indicator for the core CPI services component—typically leading by one to two months. If the PMI was merely a warning, then the Federal Reserve’s Beige Book—updated simultaneously on September 3—constitutes hard confirmation. This August Beige Book, officially titled the "Summary of Commentary on Current Economic Conditions by Federal Reserve District," reflects real-time business sentiment on the ground and qualifies as authoritative frontline economic data. The August Beige Book reveals significantly more severe pricing pressures than official statistics suggest.

Federal Reserve Beige Book: Most U.S. regions experienced slight to moderate economic growth, with sales constrained and inflation mild.

In its Wednesday release of the Beige Book, the Federal Reserve reported that economic activity across most U.S. regions expanded at a slight to moderate pace over recent weeks—though an increasing number of districts reported flat or declining activity. Overall, economic activity grew slightly to moderately in seven of the twelve Federal Reserve Districts, while the number of districts reporting flat or declining activity rose from four in the prior report to five currently. The Fed noted that although consumer spending rose slightly overall, two districts reported continued declines. In many districts, heightened economic uncertainty, rising price sensitivity, and reduced spending by low-income consumers suppressed sales performance. Reserve districts affected by winter storms reported broadly slower retail foot traffic; one district noted that immigration enforcement activities negatively impacted customer demand in urban areas. The Beige Book stated that employment levels remained generally stable, even as firms sought to boost efficiency through artificial intelligence. Several districts and industries began adopting AI or other forms of automation to improve productivity—most emphasizing productivity gains rather than workforce reduction. Of the twelve Federal Reserve Districts, eight reported inflation as mild. Overall, businesses expect near-term price increases to moderate. Wage growth was described as mild or moderate across most districts; meanwhile, some regions reported upward pressure on total compensation due to rising health insurance costs. After three rate cuts in 2025, Fed officials shifted in January to holding rates steady, citing persistently elevated inflation and recent stabilization in the labor market. According to the January FOMC meeting minutes, some policymakers even began considering the possibility of additional rate hikes—if inflation remains stubbornly high. Several officials indicated they expected rates to remain unchanged for an extended period. The U.S. Department of Labor will release February’s nonfarm payrolls report this Friday, and policymakers will receive updated inflation data next week. The Fed’s policymaking body—the FOMC—will meet again in Washington on March 17–18. Based on futures market pricing, investors currently anticipate approximately two 25-basis-point rate cuts this year. This Beige Book report was compiled by the Cleveland Fed using information collected through February 23—prior to the U.S.-Israeli military strikes against Iran, which reignited Middle East tensions and pushed oil prices higher. Regional Highlights Boston: Intensified immigration enforcement has negatively affected economic activity—particularly small businesses.

Fed’s Beige Book Shows Steady Employment, Higher Inflation

Jun 3, 2026

The Federal Reserve reported steady employment but rising inflation driven by Middle East conflict impacts on energy prices. Spillover effects were noted in packaging, groceries, and fertilizer sectors, influencing business sentiment and monetary policy expectations.

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