BBH Global Currency Strategy offers a brief analysis of the Federal Reserve's (Fed) Beige Book released on Wednesday, which showed that economic conditions had somewhat cooled in recent weeks while inflation continued to run relatively hot.

Key quotes:

“On Overall Economic Activity:  Nine Districts reported either no change or only a slight change in activity this period while three indicated modest growth. Lending volumes and loan demand generally declined across consumer and business loan types. On Labor Markets: Employment growth moderated somewhat this period as several Districts reported a slower pace of growth than in recent Beige Book reports. Wages have shown some moderation but remain elevated. On Prices: Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing.  Consumer prices generally increased due to still-elevated demand as well as higher inventory and labor costs.”

“WIRP suggests around 90% odds of 25 bp hike at the May 2-3 meeting, up from 80% at the start of this week, 70% at the start of last week, and 50% at the start of the week before that.  Despite these rising odds, one cut is still priced in by year-end. While down from two cuts at the start of last week, this needs to be completely priced out.  The Fed will have a lot of time and data before having to make a decision in June. Between the May 2-3 and June 13-14 meetings, the Fed will have digested two more job reports, two CPI/PPI reports, and one retail sales report. A pause in June might just be the most  likely outcome but it really will depend on how all that data come in. Waller, Mester, Bowman, Logan, Bostic, and Harker all speak today.  Cook speaks tomorrow. Then at midnight tomorrow, the media blackout goes into effect and there will be no Fed speakers until Chair Powell’s press conference May 3.”