Highlights
The Fed's Beige Book for the period between early October and mid-November reflects fewer districts in expansion and more with softening activity. The Beige Book said,"On balance, economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity." The watchword for the report seems to be"slight". Where there is growth, most districts report it as tepid at best. On the other hand, where activity is softer, it is almost universally described as slight. The US economy seems to be stalled for the 12 district banks as a whole. Moreover, the report said,"The economic outlook for the next six to twelve months diminished over the reporting period."
Fed policymakers had forecast that restrictive monetary policy should result in a cooling in the labor market even as disinflation progresses. The most recent Beige Book backs up that forecast. The report said,"Demand for labor continued to ease, as most Districts reported flat to modest increases in overall employment." Labor supply continues to improve for open jobs and fewer workers seem to be switching jobs. Along with a less competitive job market to attract and retain workers, wage pressures are easing overall, but"there were some reports of continued difficulty attracting and retaining high performers and workers with specialized skills."
Upward price pressures"largely moderated across Districts, though prices remained elevated," the Beige Book said. Businesses and consumers are facing higher food prices for some items, as well as higher utilities and insurance costs. For businesses,"Pricing power varied, with services providers finding it easier to pass through increases than manufacturers," the report noted. This suggests that inflation in the non-housing service sector has not yet responded to restrictive monetary policy the way commodities prices have. Two districts reported"increased cost of debt as an impediment to business growth." Fed policymakers will take into account that,"Most Districts expect moderate price increases to continue into next year."
The implications for the December 12-13 FOMC meeting are that policymakers will have to weigh the costs of reduced growth against persistent inflation beyond the improvements in the headline indexes. If the proverbial long and variable lags in the transmission of rate hikes are beginning to be more visible in the economic data, it may lead cautious FOMC voters to consider lengthening the pause in rate hikes for one more meeting, and could tip the consensus toward remaining on hold, at least until they are convinced that they have done enough to allow inflation to retreat further over time without another push.
Fed policymakers had forecast that restrictive monetary policy should result in a cooling in the labor market even as disinflation progresses. The most recent Beige Book backs up that forecast. The report said,"Demand for labor continued to ease, as most Districts reported flat to modest increases in overall employment." Labor supply continues to improve for open jobs and fewer workers seem to be switching jobs. Along with a less competitive job market to attract and retain workers, wage pressures are easing overall, but"there were some reports of continued difficulty attracting and retaining high performers and workers with specialized skills."
Upward price pressures"largely moderated across Districts, though prices remained elevated," the Beige Book said. Businesses and consumers are facing higher food prices for some items, as well as higher utilities and insurance costs. For businesses,"Pricing power varied, with services providers finding it easier to pass through increases than manufacturers," the report noted. This suggests that inflation in the non-housing service sector has not yet responded to restrictive monetary policy the way commodities prices have. Two districts reported"increased cost of debt as an impediment to business growth." Fed policymakers will take into account that,"Most Districts expect moderate price increases to continue into next year."
The implications for the December 12-13 FOMC meeting are that policymakers will have to weigh the costs of reduced growth against persistent inflation beyond the improvements in the headline indexes. If the proverbial long and variable lags in the transmission of rate hikes are beginning to be more visible in the economic data, it may lead cautious FOMC voters to consider lengthening the pause in rate hikes for one more meeting, and could tip the consensus toward remaining on hold, at least until they are convinced that they have done enough to allow inflation to retreat further over time without another push.
Definition
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.
Description
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
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
