Highlights
The Fed's Beige Book for the period between early January and late February points to generally improved conditions across the 12 district bank regions. However, if there is one word to characterize the overall tone of the report, it would be"slight". The changes may be small, but suggest that economic conditions are noticeably better. Overall conditions are about as good as they have been since the Beige Book released in February 2023. The comments from eight districts refer to conditions as growing between slightly and modestly (Boston, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco), three in which conditions are more-or-less flat (New York, Richmond, Atlanta, and Kansas City), and one which said conditions were in slight contraction (Philadelphia).
While consumers remain price and interest-rate sensitive, and are adjusting spending accordingly, they are still active. Manufacturing is about unchanged from the prior report; disruptions along the supply chain are not having an immediate impact. Residential real estate is responding when there is a dip in mortgage interest rates, and easing up again when rates move higher. Commercial real estate activity is"weak, particularly for office space" but some big projects are in the works. The report said,"Loan demand was stable to down, and credit quality was generally healthy despite a few reports of rising delinquencies." Anticipation of lower rates adds to a more optimistic outlook for six months from now.
The labor market is seeing hiring at a"slight to modest pace in most Districts." The labor market continues its rebalancing and labor supply is improved and employee churn is less. Qualified labor is still hard to find, especially for"highly skilled positions, including health-care professionals, engineers, and skilled trades specialists such as welders and mechanics." If employee compensation is rising more slowly, it is still rising, albeit"more in line with historical averages."
On inflation,"Price pressures persisted during the reporting period, but several Districts reported some degree of moderation in inflation." Passing on higher costs is becoming more difficult and some goods are falling in price like steel, cement, paper, and fuel.
The anecdotal evidence about US economic conditions in this report probably won't change the FOMC's fundamental approach to monetary policy at the March 19-20 meeting. With the labor market tight and unemployment low, and the outlook for inflation uncertain, it will be too soon change the caution that policymakers feel about lowering rates before it is clear that inflation is sustainably close to the Fed's 2 percent objective. It looks like the US economy will continue to expand in early 2024, giving policymakers some room to consider the best course of action as they weigh the incoming data.
While consumers remain price and interest-rate sensitive, and are adjusting spending accordingly, they are still active. Manufacturing is about unchanged from the prior report; disruptions along the supply chain are not having an immediate impact. Residential real estate is responding when there is a dip in mortgage interest rates, and easing up again when rates move higher. Commercial real estate activity is"weak, particularly for office space" but some big projects are in the works. The report said,"Loan demand was stable to down, and credit quality was generally healthy despite a few reports of rising delinquencies." Anticipation of lower rates adds to a more optimistic outlook for six months from now.
The labor market is seeing hiring at a"slight to modest pace in most Districts." The labor market continues its rebalancing and labor supply is improved and employee churn is less. Qualified labor is still hard to find, especially for"highly skilled positions, including health-care professionals, engineers, and skilled trades specialists such as welders and mechanics." If employee compensation is rising more slowly, it is still rising, albeit"more in line with historical averages."
On inflation,"Price pressures persisted during the reporting period, but several Districts reported some degree of moderation in inflation." Passing on higher costs is becoming more difficult and some goods are falling in price like steel, cement, paper, and fuel.
The anecdotal evidence about US economic conditions in this report probably won't change the FOMC's fundamental approach to monetary policy at the March 19-20 meeting. With the labor market tight and unemployment low, and the outlook for inflation uncertain, it will be too soon change the caution that policymakers feel about lowering rates before it is clear that inflation is sustainably close to the Fed's 2 percent objective. It looks like the US economy will continue to expand in early 2024, giving policymakers some room to consider the best course of action as they weigh the incoming data.
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
