The Fed's Beige Book for the period between late May and late June shows some improvement in overall economic conditions. However, where growth occurred, it was generally deemed"slow" or"slight". Five Districts report growth (Boston, Richmond, Atlanta, Minneapolis, and Dallas), five are about unchanged (New York, Cleveland, Chicago, St. Louis, and Kansas City), and two are showing mild softening of conditions (Philadelphia and San Francisco). If economic conditions between the Beige Books released on May 31 and July 12 show,"Overall economic activity increased slightly since late May,","expectations for the coming months generally continued to call for slow growth."

The FOMC will take the contents of this report into account in the deliberations scheduled for July 25-26. Importantly, the report provides anecdotal evidence that suggests that the imbalances in the labor market are leveling out, upward wage pressures are easing, and price inflation slowing. All of these circumstances will allow the FOMC room to put off hiking interest rates again absent a compelling argument to the contrary. Fed policymakers have been clear they remain data dependent going into their next meeting. This will require evidence that inflation is indeed sustainably returning to the 2 percent flexible average inflation target before signaling that the pause is expected to last. They are unlikely to back off language that monetary policy will remain restrictive for some time.

The Beige Book said,"Employment increased modestly this period, with most Districts experiencing some job growth." Demand for labor is described as"healthy, though some contacts reported that hiring was getting more targeted and selective". The labor supply remains tight for employers,"particularly in health care, transportation, and hospitality, and for high-skilled positions in general." However, it is also said to be"improved." Importantly, employers report that conditions are more like the pre-pandemic period with less churn in the job market and more moderate wage increases.

Price inflation is described as"at a modest pace overall, and several Districts noted some slowing in the pace of increase." Pass-through of higher prices is uneven. The outlook for inflation was more positive. The report said,"Price expectations were generally stable or lower over the next several months."

This book is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.

This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are the single most influential event for the markets. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity. Since the past recession, traders worry about the impact of the Beige Book on the timing of tapering quantitative easing.

Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.


Frequency
Eight times a year