The Federal Reserve's Beige Book depicts a “steady and soft landing” roadmap: the US economy is picking up, and employment is not surprising

The Zhitong Finance App learned that the Federal Reserve said in its “Beige Book” (Beige Book) survey report on regional contacts that since mid-November, the core economic growth activity in most regions of the US has shown an upward trend at a “slight to moderately moderate pace”. This is similar to many recently released US labor market data. These mixed employment growth/labor growth data suggest that the US labor market showed a slight recovery trend from the end of 2025 to the beginning of 2026, and marginally strengthened the “soft landing” of the US economy The narrative is a strong proof that the US labor market and consumer spending, which are critical to the US economy, have not deteriorated as rapidly or continue to weaken as some economists have predicted.

Since the release of various labor market statistics in December, when combined with the newly released CPI for December, the pace of US inflation is cooling down steadily, and the newly released US retail sales data has increased beyond expectations. Interest rate futures traders can say that their expectations for the Federal Reserve's interest rate cut in 2026 have continued to cool down.

Since last Friday, this “interest rate cut deal” theme has begun to show a clear weakening trend. At that time, the latest US non-farm payrolls data showed a moderate recovery in employment and an unexpected decline in the unemployment rate. This almost completely eliminated the possibility that the Federal Reserve policy meeting this month would continue to announce interest rate cuts, and prompted more and more interest rate futures market traders to drastically delay the timing of interest rate cuts in the next few months.

According to the “CME Federal Reserve Observation Tool”, interest rate futures market traders are currently reducing their bets on the Federal Reserve's interest rate cut in 2026 from the three interest rate cuts that were previously set at the end of 2025 to two interest rate cuts, and traders are generally betting that the first time to cut interest rates in 2026 will be in June, not in March, as previously bet. However, the interest rate cut expectations of traders shown by the “CME Federal Reserve Watch Tool” are still higher than the median expectations of US Federal Reserve officials who cut interest rates only once in 2026, as shown by the median FOMC bitmap.

“This marks a significant improvement over the past three Beige Book reporting cycles. In the previous ones, most regions reported little change in economic-level activity,” the newly released US Federal Reserve Beige Book report shows. The timeline assessed by the newly released US Federal Reserve Beige Book report follows the complete end of the longest federal government shutdown in US history.

Of the 12 regional branches of the Federal Reserve under the Federal Reserve, the level of non-farm payrolls has remained stable in 8 regions. The latest salary data grew moderately at a “moderate” rate. According to the report, “contacts at the Federal Reserve in several regions report that salary growth has returned to the 'normal' level of previous years.”

Price increases in most economic regions are also showing a “moderate” increase rather than a sharp increase. However, “some contacts who initially absorbed the costs associated with tariffs are beginning to pass on these costs to customers on a certain scale because pre-tariff inventory has been exhausted, or because pressure to protect profits has become more urgent than before,” the Federal Reserve's Beige Book report said.

Overall, the newly released Beige Book report shows that US economic activity is picking up at a “slight to moderate” rate in most regions, which means that the economy is showing no significant signs of decline, but is maintaining a growth trend — an important part of the “soft landing.”

At the employment level, although some regional Federal Reserve reports indicate a slowdown in recruitment efforts, overall employment levels have remained mostly unchanged, and wage growth is still “moderate,” reflecting that the labor market is neither significantly overheated nor large-scale unemployment. This is basically consistent with the description of “balanced growth in the job market rather than sliding into recession” in the definition of a soft landing. Furthermore, although the Beige Book report also mentioned that tariff costs are gradually being passed on to consumers, inflation is still showing a downward trajectory and the increase is very limited.

Federal Reserve officials have recently collectively demonstrated a hawkish monetary policy stance

The report is largely in line with the views of some of the Federal Reserve's policymakers. These officials recently described the labor market as cooling compared to previous years, but it has remained stable and is beginning to show a slight recovery trend. Meanwhile, some Federal Reserve officials are wary of further interest rate cuts. The core reason is that inflation is still higher than the long-term 2% inflation target anchored by the Federal Reserve, and that the tariff policy led by US President Trump may bring more large-scale price pressure.

The steady recovery of the labor market and the slow pace of inflation cooling may greatly weaken the logic of further interest rate cuts after the Federal Reserve announced three consecutive interest rate cuts at the last three monetary policy meetings in 2025, especially in the macroeconomic context where inflation still exceeds the long-term inflation target of 2% anchored by the Federal Reserve.

Traders generally bet that the first time to cut interest rates in 2026 will be in June, rather than March, as previously bet. According to the latest research report released by Goldman Sachs economists, the Wall Street financial giant predicts that the Federal Reserve will cut interest rates by 25 basis points each in June and September, a complete delay from the March and June forecasts previously predicted. Morgan Stanley, on the other hand, said that it postponed the Fed's interest rate cut expectations from January and April to June and September, by 25 basis points each time. The agency emphasized that the core logic of interest rate cuts has shifted from “stabilizing employment” to “fighting stubborn inflation,” and that policy action needs to wait until the impact of tariffs is fully revealed and inflation clearly falls back to the 2% target.

The 2026 FOMC voting committee and Minneapolis Federal Reserve Chairman Neel Kashkari (Neel Kashkari) said on Wednesday that the current US interest rate level may be close to a “neutral interest rate” that neither stimulates nor suppresses the economy, and that the future direction of the Federal Reserve's policy will depend on the latest economic data. “The US economy has proven to be far more resilient than I had anticipated.” He said and pointed out that since the economy can maintain strong growth in an environment of high interest rates, the downward suppression effect of monetary policy on the economy may not be obvious.

Philadelphia Federal Reserve Chairman Anna Paulson (Anna Paulson), who is also on the FOMC polling committee this year, said she is “cautiously optimistic” about inflation and expects inflation to be close to 2% by the end of the year, and reiterated that if inflation decelerates significantly and the labor market stabilizes, the Federal Reserve may cut interest rates further slightly later this year.

The Richmond Federal Reserve has prepared this edition of the Beige Book. The information used was collected as of January 5, 2026. The report includes comments and anecdotes from business leaders and other key contacts from all regions of the Federal Reserve. Federal Reserve officials will convene a monetary policy meeting from January 27 to 28, which will also determine the direction of interest rates.

Here are the highlights of economic growth and reviews at the regional level in the US as shown in the Beige Book report

Boston: “A business contact focused on human resources services reported an increase in temporary recruitment, with many of these positions expected to be converted to permanent jobs in early 2026.”

NEW YORK: “An auto parts dealer from Long Island reports that most of the costs have been passed on to customers due to increased tariffs on goods from India. A coffee roaster said that although the special tariffs on coffee have mostly been abolished, sales prices will only drop significantly once stocks purchased at higher costs have been cleaned up.

PHILADELPHIA: “The Contact Report says consumers continue to face burdensome issues at most household budget levels, including housing, cars, utilities, insurance, and healthcare.”

CLEVELAND: “The report shows that demand for manufactured goods rebounded after several rounds of steady or declining activity. Some producers continue to use large-scale construction of AI data centers as the main driver of demand.”

Richmond: “Tariffs continue to affect businesses and erode profits. For example, a manufacturer of a large installation system is paying 80% of tariffs, while a small drilling machine manufacturer is spending nearly $200,000 to pay huge tariffs on imported equipment.”

ATLANTA: “Several contacts said they have accelerated the penetration of AI to increase productivity and actively manage the number of employees, although some contacts said that any significant impact of AI technology on the number of employees 'will take a few years'.”

Chicago: “Demand for trucking is generally flat, and freight rates continue to weaken. A freight industry consultant predicts that low profits may cause some small fleets to go out of business next year.”

KANSAS CITY: “A contact person reported that most of the recent layoffs at a manufacturing plant in a rural market were absorbed within a month. Looking ahead, companies generally expect to increase recruitment in the first half of the year, particularly in the manufacturing industry.”

SAN FRANCISCO: “Major retailers, consumers and several contacts in business services, construction, transportation, and manufacturing have reported implementing price increases to offset higher tariffs and the rising costs of utilities, insurance, and some raw materials in recent years.”