Highlights
The Beige Book for the period of late February through early April shows economic activity growing on a slight-to-modest pace across ten districts and flat in two. Overall, the tone of the report reflects the most solid economic conditions since the Beige Book release in July 2022. The improvement in conditions since the Biege Book in November 2023 suggests that the US economy is at the least risk for recession in the past two years.
However, this does not mean that the risks to the economy from inflation and geopolitical events have receded into the background, or that the impact of restrictive monetary policy will not weigh on growth. The Beige Book said,"The economic outlook among contacts was cautiously optimistic, on balance."
Fed policymakers will consider the anecdotal evidence about the US economy at the upcoming FOMC meeting on April 30-May 1. FOMC participants will carefully deliberate in the context of the dual mandate of maximum employment and price stability.
On the labor market front, Fed policymakers should find the rebalancing in the labor market supply and demand moving in the desired direction. The Beige Book said,"Employment rose at a slight pace overall, with nine Districts reporting very slow to modest increases, and the remaining three Districts reporting no changes in employment." The FOMC has anticipated slowing in the labor market as a result of tighter monetary policy, although it has taken some time to develop. Importantly, if hiring is slower, job cuts are still relatively few. Businesses are seeing less churn among current employees and are reluctant to lose experienced workers. The Beige Book said,"Despite the improvements in labor supply, many Districts described persistent shortages of qualified applicants for certain positions, including machinists, trades workers, and hospitality workers." The need to attract and retain experienced worker means that wage gains remain moderate, although not across the board. The Beige Book said,"Wages grew at a moderate pace in eight Districts, with the remaining four noting only slight to modest wage increases." Overall wage gains are slowing. The report noted,"Multiple Districts said that annual wage growth rates had recently returned to their historical averages."
Fed policymakers will have to take into account that improvements in inflation have stalled. The Beige Book said,"Price increases were modest, on average, running at about the same pace as in the last report." Prices had a mixed performance."On balance, contacts expected that inflation would hold steady at a slow pace moving forward. At the same time, contacts in a few Districts -- mostly manufacturers --perceived upside risks to near-term inflation in both input prices and output prices."
There is nothing in the current Beige Book that would counsel the FOMC to either be more inclined for rate cuts or less so at the present time. Fed policymakers will remain patient and cautious. In assessing the balance of risks in the current economy, it is likely they will prefer to stay with the present fed funds target rate range of 5.25-5.50 percent as less potentially damaging than removing policy restriction too soon and allowing inflation to become entrenched.
However, this does not mean that the risks to the economy from inflation and geopolitical events have receded into the background, or that the impact of restrictive monetary policy will not weigh on growth. The Beige Book said,"The economic outlook among contacts was cautiously optimistic, on balance."
Fed policymakers will consider the anecdotal evidence about the US economy at the upcoming FOMC meeting on April 30-May 1. FOMC participants will carefully deliberate in the context of the dual mandate of maximum employment and price stability.
On the labor market front, Fed policymakers should find the rebalancing in the labor market supply and demand moving in the desired direction. The Beige Book said,"Employment rose at a slight pace overall, with nine Districts reporting very slow to modest increases, and the remaining three Districts reporting no changes in employment." The FOMC has anticipated slowing in the labor market as a result of tighter monetary policy, although it has taken some time to develop. Importantly, if hiring is slower, job cuts are still relatively few. Businesses are seeing less churn among current employees and are reluctant to lose experienced workers. The Beige Book said,"Despite the improvements in labor supply, many Districts described persistent shortages of qualified applicants for certain positions, including machinists, trades workers, and hospitality workers." The need to attract and retain experienced worker means that wage gains remain moderate, although not across the board. The Beige Book said,"Wages grew at a moderate pace in eight Districts, with the remaining four noting only slight to modest wage increases." Overall wage gains are slowing. The report noted,"Multiple Districts said that annual wage growth rates had recently returned to their historical averages."
Fed policymakers will have to take into account that improvements in inflation have stalled. The Beige Book said,"Price increases were modest, on average, running at about the same pace as in the last report." Prices had a mixed performance."On balance, contacts expected that inflation would hold steady at a slow pace moving forward. At the same time, contacts in a few Districts -- mostly manufacturers --perceived upside risks to near-term inflation in both input prices and output prices."
There is nothing in the current Beige Book that would counsel the FOMC to either be more inclined for rate cuts or less so at the present time. Fed policymakers will remain patient and cautious. In assessing the balance of risks in the current economy, it is likely they will prefer to stay with the present fed funds target rate range of 5.25-5.50 percent as less potentially damaging than removing policy restriction too soon and allowing inflation to become entrenched.
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
