Beige Book: Overall activity increased at slight-to-modest pace in most districts

The January 2026 Beige Book from the Federal Reserve indicates a slight improvement in the US economy, with eight out of twelve districts reporting slight to modest growth. This follows three reporting cycles of stagnation. Consumer spending during the holiday season was a key driver for this uptick, especially among high-income households who continued to purchase luxury goods and travel, while lower-income consumers became more price-sensitive, cutting back on non-essential items. Labor market conditions remained largely unchanged, characterized by low hiring and low firing. Most firms focused on backfilling essential roles instead of expanding their workforce. Wage growth has moderated back to pre-pandemic levels, but difficulties in recruiting skilled labor for technical trades and healthcare persist. Inflation remains a central concern, with prices increasing moderately across most regions, influenced by tariffs that firms are now starting to pass on to customers. Regional performance varied, with New York reporting a modest decline and Philadelphia experiencing slight growth. Despite these challenges, the overall outlook for 2026 is cautiously optimistic, with most contacts expecting slight growth to continue in the coming months. The chance of a rate cut on January 28 is under 10%.