The US financial markets were closed on Wednesday for services commemorating the life of a former President. President George H.W. Bush has been laid to rest.

With the market closed there is not much to report on other than the Fed's Beige Book, the only economic indicator not affected by today's government closure. Remember, there is nothing federal about the U.S. Federal Reserve Bank.

Futures trading has been indicating a positive open for the market on Thursday, so there is that to consider. I would not be surprised to see a substantial rebound after Tuesday's broad sell-off. The move on Tuesday was a knee-jerk reaction to news the market could not make sense of. The markets had a whole day to think things over, anything could happen.

Yes, interest rates fell on the ten year Treasury but that's not a bad thing. The drop in rates is an effect of Jerome Powell's dovish comments and may indicate the Fed will not raise rates as much as first thought, that neutral rates are closer than estimated. This doesn't mean the economy is going to falter, far from it, it means the economy will be allowed to stabilize at the current level until growth begins to accelerate again.

The Beige Book

The Beige Book shows that growth continued in most Federal Reserve districts at a modest or moderate pace. A few districts show growth decelerated from the previous month but remain positive. Spending is strong despite weakness in autos. Tourism held kept pace with the economy, and labor markets continue to tighten.

More than half of the districts reported that tightening labor markets and a lack of available employees constrained growth in some form. Some districts report employees simply not turning up for work. Conversely, and evidence that labor markets are indeed tightening, wages continue to rise. Wages are also being enhanced by non-wage benefits in an effort to attract and retain quality employees.

Regarding prices, prices continue to rise at a modest to moderate pace across all districts. The pace of increase of input cost is outpacing the rise of final-goods pricing. The news is as expected, no indication inflation is abating or that the economy is turning south. We may see growth slow due to a lack of available workers but strong economic conditions will remain.

Until then, remember the trend!

Thomas Hughes



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