The latest "Beige Book" released by the Federal Reserve on Wednesday (October 15) shows that recent economic activity in the United States remains generally stable, with little change in employment levels, a slight decline in consumer spending, ongoing price increases, and heightened cost pressures faced by businesses in some regions.

This report, compiled by the San Francisco Fed based on information collected from the 12 regional reserve banks before October 6, indicates slight to moderate growth in three regions, stability in five regions, and a slight slowdown in four regions. Overall, the U.S. economy continues to exhibit a "steady but cautious" operating trend amid high interest rates and inflation.

The report shows that consumer spending has slightly decreased overall, with some businesses attributing this trend to high prices and rising borrowing costs suppressing demand. At the same time, input costs have generally increased, with tariff hikes being a major driver. The Fed notes that different businesses have adopted varying strategies to cope with rising costs: some choose to absorb costs to maintain customer relationships, while others pass the price increase directly onto end consumers.

In terms of employment, the labor situation remains generally stable across most regions, but some businesses are reducing their workforce through layoffs or natural attrition. Companies commonly mention that demand slowdown, economic uncertainty, and investments in artificial intelligence (AI) are the main reasons for reducing headcount. Some businesses that are still hiring report that recruitment difficulties have eased compared to before, but labor supply in industries such as hospitality, agriculture, construction, and manufacturing remains tight due to changes in immigration policies.

Regarding inflation, the report states that prices continue to rise overall, with input cost growth in some regions even outpacing previous rates. Although businesses generally maintain cautious pricing, the Fed believes that price pressures have not significantly alleviated.

Looking ahead, assessments of the economic outlook vary across regions. Some businesses expect demand to rebound in the next 6 to 12 months, while others are concerned that a prolonged government shutdown could deliver a new shock to economic activity.

Due to the government shutdown causing delays in the release of some official economic data, market attention to this Beige Book is higher than usual.

Against the backdrop of a stable national economy, the Fed's Beige Book also shows significant regional differences. The report points out that different regions emphasize varying aspects of inflation pressure, employment trends, and industry performance, with some regions still bearing the brunt of tariffs and rising costs, while others face labor structure adjustments or industry demand slowdowns. Below are the main situations in each region:

Philadelphia: Several interviewed businesses indicated that some suppliers are citing tariffs as a reason for raising prices, even if their products are not directly affected by new tariffs.

St. Louis: Respondents from the manufacturing, construction, and agriculture sectors report that labor shortages persist, with some workers refusing to show up for work due to fears of deportation.

Cleveland: A manufacturing representative stated that the company had previously delayed layoffs while waiting for an industrial output recovery, but can no longer postpone workforce reduction plans.

Minneapolis: An advertising company in Minnesota reported that AI tools are improving work efficiency, leading to a "reduced demand for entry-level positions."

Atlanta: Interviewed businesses warned that the price transmission effects of tariffs have just begun to manifest, and they expect upward pressure on commodity prices to continue until 2026.

Chicago: A contact in the freight industry described the current market conditions as "recession-like," indicating weak transportation demand.

Kansas City: Although input costs remain high, some manufacturing companies reported that raw material costs have "cooled from a boil to a simmer," alleviating some pressure on businesses to respond to supply shocks.

San Francisco: The report shows an increase in local businesses closing or shortening operating hours, along with a slight rise in loan delinquency rates.

Dallas: Employment in the energy sector continues to decline. Companies are completing more drilling operations in a shorter time with fewer workers through technology and efficiency improvements.

Before the release of the Beige Book, Fed Chair Powell also noted at a national business economics conference in Philadelphia that the Fed is nearing the completion of its balance sheet reduction plan, while hinting that further rate cuts may still be considered in the future.

He stated, "Our long-standing plan is to stop the balance sheet reduction when bank reserves are slightly above adequate levels. We may be approaching that point in the coming months while closely monitoring various indicators to guide our decisions."

The market currently widely expects the Fed to potentially lower the federal funds rate two more times in the remaining months of this year. The CME FedWatch tool shows that the probability of a rate cut at the next meeting has reached 97.8%, with an expected cut of 25 basis points. Rate cuts typically mean increased liquidity and lower borrowing costs, which can help boost risk assets, including Bitcoin (BTC).

According to on-chain analytics firm Glassnode, the overall funding rate for major crypto assets has dropped to its lowest level since the 2022 bear market due to the flash crash event on October 11. Looking back at 2022, the price of Bitcoin fell to a low of $16,000 due to the liquidity crisis triggered by the LUNA collapse and the FTX fallout, leading to an extremely harsh bear market. In the following months, due to massive liquidations and market concerns, Bitcoin's funding rate remained in deep negative territory for an extended period.

The flash crash event in 2025 exhibited similar emotional characteristics: Bitcoin and Ethereum showed significant deleveraging, with funding rates plummeting. Analysts indicate that this suggests investors are reducing aggressive long positions, leading to a substantial decrease in market leverage trading volume. This trend indicates that the market is undergoing risk position liquidation and rebalancing, which may reduce price volatility in the short term and contribute to a healthier market structure in the medium term.

Despite the ongoing low funding rates indicating decreased trader interest and potentially tight market liquidity, bullish sentiment related to Bitcoin has hardly diminished, and the market has shown signs of recovery. Glassnode's BTC long-short preference chart shows that the net short positions of the largest Bitcoin traders on the Hyperliquid platform have surged sharply since October 6, well ahead of the flash crash event on Friday. Although net shorts remain deeply negative, signs of a pullback have emerged.

Justin d’Anethan, head of Arctic Digital Partners, stated, "What we just experienced was a massive emotional reset. Volatility punishes and rewards traders alike. However, in the long run, the market structure remains intact. ETF inflows remain strong, exchange balances are nearing cycle lows, and the broader market narrative is actually stronger after this washout."

The latest Beige Book indicates that the U.S. economy remains stable overall, with employment showing slight fluctuations, but consumer spending and price pressures still exhibit regional differences. Fed Chair Powell noted that the balance sheet reduction is nearing completion, and future rate cuts are still under consideration to address economic uncertainty and support market liquidity. Meanwhile, the recent flash crash in the crypto market has raised investor concerns about bear market risks. Despite short-term volatility intensifying, the market structure is still recovering, and bullish sentiment is on the rise, indicating that overall risk is being rebalanced. Future trends in the economy and financial markets will need to pay attention to policy dynamics, inflation trends, and changes in market sentiment.

Related: Whether Bitcoin (BTC) can continue its "Uptober" rally depends on the Fed's rate cut probability and the performance of Nasdaq and tech stocks.

Original article: “The Fed's Beige Book is steady but cautious, Powell hints at rate cuts, but the market flash crash still raises bear market concerns”

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