The Fed's Beige Book provides anecdotal evidence about economic conditions across the 12 districts roughly for the period from early April through mid-May. Overall, the tone of the report is narrowly less positive than the prior one with eight districts reporting growth as slight, two were modest or moderate, and two were basically unchanged. Ten of 12 districts are reporting at least some growth. Present conditions suggest that consumers remain sensitive to prices and cautious about spending. The Beige Book said,"Tight credit standards and high interest rates continued to constrain lending growth." Rates are having an impact on residential real estate, while"commercial real estate sector softened amid supply concerns, tight credit conditions, and elevated borrowing costs." The Beige Book noted,"Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks."

The labor market has cooled since the prior report. The Beige Book said,"Employment rose at a slight pace overall. Eight Districts reported negligible to modest job gains, and the remaining four Districts reported no changes in employment." Labor supply has improved,"though some shortages remained in select industries or areas". Wage growth continued to be"moderate", if decelerating somewhat in some districts. Importantly,"Several Districts reported that wage growth was at pre-pandemic historical averages or was normalizing toward those rates." The supply and demand for labor is more balanced.

The Beige Book said,"Price growth is expected to continue at a modest pace in the near term." Businesses are having more difficulty in passing on rising costs,"particularly insurance", and profits are narrower.

FOMC policymakers will consider the contents of this Beige Book at the June 11-12 FOMC meeting. They will likely find some points of satisfaction related to progress in rebalancing the labor market and consequent deceleration in wage increases as competition for scarce workers eases. More concerning will be the lack of progress in disinflation, although the more recent inflation numbers suggest that the sideways movement in the first quarter 2024 is ending and downward movement resuming.

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