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Comment: Look for clues about the reasons for the FOMC rate cut in the Beige Book, and be prepared for a possible downside surprise in ISM Non-Manufacturing Index

The release of the Fed’s Beige Book at 14:00 on Wednesday could provide some clues as to why the FOMC chose not only to cut short-term rates, but why it did so by a hefty 50 basis points and during the intermeeting period when the next meeting is only two weeks away. The Beige Book’s anecdotal evidence is some of the best and most current information about conditions in the economy and the outlook for businesses across the 12 Districts. I note that in the Beige Book released on September 6, 2017, the report included an effort to take into account the impacts of Hurricane Harvey even though it made landfall roughly around the time that the survey period had closed. It is possible the most recent compilation will try to capture some of the latest information in regard to developments associated with the COVID-19 outbreak. The regional surveys of manufacturing have certainly indicated that the effects of quarantines in China are slowing the movement of goods along the supply chain. This may also be the first consolidated look at how much service industries like tourism have felt disruptions and how deeply these have been affected.

There’s also room for a downside surprise in the ISM Non-Manufacturing Index when it is reported at 10:00 ET later this morning. Available District Bank surveys for services (New York, Philadelphia, Richmond, Dallas, and Kansas City) may not be regions that encompass where the immediate impacts of travel rerouting, delays, and outright cancellations are going to be most evident.

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