Highlights
The Beige Book prepared by the Philadelphia Fed with data from mid-November through January 8 shows the US economy little changed from the prior report. Reports of activity across the 12 district banks ran from moderate contraction to moderate expansion, with most hovering close to neutral. On net, the tone is improved, but not one of robust activity. Five districts reported at least some expansion (Cleveland, Richmond, Atlanta, Chicago, Dallas). Three districts reported conditions as steady, stable, or unchanged (Philadelphia, St. Louis, San Francisco). Four districts said conditions were down or declined, but in most it was said to be slight (Boston, New York, Minneapolis, Kansas City). As to future conditions, the report said,"Overall, most Districts indicated that expectations of their firms for future growth were positive, had improved, or both."
At the next FOMC meeting on January 30-31, policymakers will be considering the impact of past rate hikes, where the"long and variable lags" in the transmission of restrictive monetary policy were and are, and how financial markets perceive the outlook for interest rates. Pertinent to that, the report said,"Districts continued to note that high interest rates were limiting auto sales and real estate deals; however, the prospect of falling interest rates was cited by numerous contacts in various sectors as a source of optimism." If policymakers remain hawkish on the rate outlook and not yet convinced that inflation is sustainably moving toward the 2 percent objective, they will need to reiterate their message that the inflation fight is not done and that monetary policy will remain restrictive for some time yet.
Importantly, the anecdotal evidence in the Beige Book backs up the hard economic data and will likely leave interest rate policy on hold for now. Policymakers have been looking for a period of below trend growth to result from the 525 basis points of rate increases in the March 2022-September 2023 period. Comments related to economic activity suggest that it has arrived.
Labor market rebalancing continues. The report said,"Seven Districts described little or no net change in overall employment levels, while the pace of job growth was described as modest to moderate in four Districts. Two Districts continued to note a tight labor market, and several described hiring challenges for firms seeking specialty skills, such as auto mechanics or experienced engineers in the Boston and San Francisco Districts, respectively." The supply of labor is more plentiful, there is less churn among the currently employed, and upward wage pressures have eased.
Overall price increases are also easing. The report said,"Six Districts noted that their contacts had reported slight or modest price increases, and two noted moderate increases. Five Districts also noted that overall price increases had subsided to some degree from the prior period, while three others indicated no significant shift in price pressures."
At the next FOMC meeting on January 30-31, policymakers will be considering the impact of past rate hikes, where the"long and variable lags" in the transmission of restrictive monetary policy were and are, and how financial markets perceive the outlook for interest rates. Pertinent to that, the report said,"Districts continued to note that high interest rates were limiting auto sales and real estate deals; however, the prospect of falling interest rates was cited by numerous contacts in various sectors as a source of optimism." If policymakers remain hawkish on the rate outlook and not yet convinced that inflation is sustainably moving toward the 2 percent objective, they will need to reiterate their message that the inflation fight is not done and that monetary policy will remain restrictive for some time yet.
Importantly, the anecdotal evidence in the Beige Book backs up the hard economic data and will likely leave interest rate policy on hold for now. Policymakers have been looking for a period of below trend growth to result from the 525 basis points of rate increases in the March 2022-September 2023 period. Comments related to economic activity suggest that it has arrived.
Labor market rebalancing continues. The report said,"Seven Districts described little or no net change in overall employment levels, while the pace of job growth was described as modest to moderate in four Districts. Two Districts continued to note a tight labor market, and several described hiring challenges for firms seeking specialty skills, such as auto mechanics or experienced engineers in the Boston and San Francisco Districts, respectively." The supply of labor is more plentiful, there is less churn among the currently employed, and upward wage pressures have eased.
Overall price increases are also easing. The report said,"Six Districts noted that their contacts had reported slight or modest price increases, and two noted moderate increases. Five Districts also noted that overall price increases had subsided to some degree from the prior period, while three others indicated no significant shift in price pressures."
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
