Federal Reserve Beige Book: The economy in most regions of the United States is experiencing slight to moderate growth, with sales subdued and inflation moderate

The Federal Reserve stated in its Beige Book released on Wednesday that economic activity in most regions of the United States has grown at a slight to moderate pace in recent weeks, but an increasing number of regions reported that economic activity was flat or declining. Overall economic activity grew at a slight to moderate pace in seven of the twelve Federal Reserve districts, while the number of districts reporting flat or declining activity increased from four in the previous report to five in the current one.

The Federal Reserve noted that although consumer spending has generally increased slightly, two districts reported a continued decline. In many districts, heightened economic uncertainty, increased price sensitivity, and reduced spending by low-income consumers have suppressed sales performance. Reserve areas affected by winter storms indicated that retail foot traffic has generally slowed, with one district stating that immigration enforcement activities have negatively impacted customer demand in urban areas.

The Beige Book stated that employment levels have remained stable overall, although businesses are seeking to leverage artificial intelligence to improve efficiency. Some businesses in various districts and industries have begun adopting artificial intelligence or other forms of automation to enhance efficiency, with most emphasizing that the goal is to increase productivity rather than replace employees.

In eight of the twelve Federal Reserve districts, inflation is reported to be at moderate levels. Overall, businesses expect the pace of price increases to slow in the near term. Most businesses in various regions reported that wages are rising at a moderate or modest pace; at the same time, some regions also reported upward pressure on overall compensation due to rising healthcare costs.

After three rate cuts in 2025, Federal Reserve officials shifted to maintaining interest rates in January this year, citing that inflation remains above target levels and the labor market has stabilized recently. According to the minutes of the January FOMC meeting, some policymakers even began considering that if inflation remains high, the Federal Reserve may need to raise rates again. Some officials indicated that they expect rates to remain unchanged for some time.

The U.S. Department of Labor will release the non-farm payroll report for February this Friday, and officials will receive the latest inflation data next week. Federal Reserve policymakers will meet again in Washington on March 17-18. According to futures contract pricing, investors currently expect the Federal Reserve to cut rates about twice this year, each by 25 basis points.

This Beige Book report was prepared by the Cleveland Fed based on information up to February 23, prior to the U.S. strikes against Iran, which reignited tensions in the Middle East and drove oil prices soaring.

Regional Highlights

Boston: Strengthened immigration enforcement has negatively impacted economic activity, particularly affecting small businesses. In a community in Maine where enforcement actions have increased, many businesses reported disruptions in staffing and revenue declines due to reduced foot traffic.

New York: Despite overall weak hiring, large companies that are operating relatively stable are still hiring recent college graduates at a steady pace, citing long-term labor demand and belief that artificial intelligence will enhance productivity and business activity.

Philadelphia: Nearly 40% of businesses reported that customers have become more price-sensitive compared to the previous quarter (down from 59% in November last year); 56% of businesses reported little change. Several respondents stated that they have no plans to raise prices Atlanta: Most businesses expect to maintain their current workforce size in 2026, with some indicating plans to use artificial intelligence as a tool to enhance productivity rather than replace employees in the medium term.

Cleveland: Several respondents mentioned that they are leveraging automation and artificial intelligence solutions to improve back-office efficiency. One banker anticipated that this trend could further reduce the demand for employees.

Richmond: Although still relatively weak compared to last year, consumer spending on travel and tourism has slightly improved from the previous cycle. Notably, the growth in hotel revenue in Virginia is primarily driven by high-end accommodations, while the mid- to low-end market remains flat.

Chicago: The scale of commercial loans has slightly increased, with rising loan demand from large companies (including those investing in artificial intelligence) and the defense industry.

St. Louis: A medium-sized manufacturer in Memphis stated that due to ongoing hiring friction, capital budgets are shifting towards automation, as robots and industrial artificial intelligence are the most reliable ways to maintain capacity and quality.

Minneapolis: Businesses pointed out that other challenges are weakening immediate demand for labor or limiting the ability to find skilled workers. A manufacturer in North Dakota reported weak sales, stating, "We will address the potential redundancy in the workforce through natural attrition."

Kansas City: Respondents indicated that about half of rural hospitals are operating at a loss, and many financially troubled hospitals may close. In northern Missouri, five hospitals are reportedly at risk of closure, which could lead to the loss of 1,000 jobs.

Dallas: Despite overall activity growth, healthcare companies stated that spending and investment decisions will be delayed until there is more clarity on whether the extended subsidies under the Affordable Care Act (ACA) will continue.

San Francisco: A respondent from the financial services industry noted that many job seekers are overqualified but eager to find work, with companies recently hiring a candidate with decades of experience for an entry-level position