Highlights
The Fed's Beige Book for the period from late May to early July shows an overall softening in activity across the 12 district banks. Seven districts reported growth along a slight-to-moderate range (Boston, Philadelphia, Richmond, Chicago, St. Louis, Kansas City, and Dallas), three said conditions were about unchanged from the prior report (New York, Atlanta, and San Francisco), and two slipped into weaker conditions (Cleveland and Minneapolis). There is a decided downshift in the tone of reported activity since the end of May that suggests that the somewhat better pace of growth earlier this year has eroded with concerns about persistent inflation and flagging hopes for a rate cut.
However, it is notable that the comments period ended the same day as Fed Chair Powell delivered the first day of his semiannual monetary policy testimony. While Powell repeatedly said he was not signaling any changes in monetary policy, his remarks did renew expectations for a rate cut in September that would not be captured in comments from Beige Book contributors.
The Beige Book noted that employment"rose at a slight pace in the most recent reporting period." Fed policymakers have previously spoken about the cooling labor market in the hard data that is backed up by the anecdotal evidence. Nonetheless, the report shows there is still labor demand that is being unmet even as there is less churn to deal with. The report said,"Skilled-worker availability remained a challenge across all Districts; however, several Districts reported some improvement in labor supply conditions. Additionally, labor turnover was lower, which reduced demand to find new workers." If hiring has slowed, the need for competitive compensation remains an issue. The Beige Book said,"Wages grew at a modest to moderate pace in most Districts." Businesses may be able to be"more selective on who they hire and not backfill all open positions," but they will need to offer attractive compensation to attract and retain the workers they need.
The stall in disinflation in the first quarter 2024 seems to have given way to less upward price pressure, in part because of falling consumer demand. The report said,"Prices increased at a modest pace overall, with a couple Districts noting only slight increases. While consumer spending was generally reported as showing little to no change almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals."
When the FOMC next meets on July 30-31, it will consider the anecdotal evidence about the US economy as well as the hard numbers from the data reports. Broadly, it looks like growth continues to be modest but below the 1.8 percent increase in GDP in the FOMC's longer-run forecast, that the rebalancing in the labor market is about done, and that disinflation has resumed and further progress is being made to reach the Fed's 2 percent inflation objective. It is probably not enough for the FOMC to deliver a rate cut at the upcoming meeting, but it is enough to signal that policymakers are near the"greater confidence" that Chair Powell has said they are looking for.
However, it is notable that the comments period ended the same day as Fed Chair Powell delivered the first day of his semiannual monetary policy testimony. While Powell repeatedly said he was not signaling any changes in monetary policy, his remarks did renew expectations for a rate cut in September that would not be captured in comments from Beige Book contributors.
The Beige Book noted that employment"rose at a slight pace in the most recent reporting period." Fed policymakers have previously spoken about the cooling labor market in the hard data that is backed up by the anecdotal evidence. Nonetheless, the report shows there is still labor demand that is being unmet even as there is less churn to deal with. The report said,"Skilled-worker availability remained a challenge across all Districts; however, several Districts reported some improvement in labor supply conditions. Additionally, labor turnover was lower, which reduced demand to find new workers." If hiring has slowed, the need for competitive compensation remains an issue. The Beige Book said,"Wages grew at a modest to moderate pace in most Districts." Businesses may be able to be"more selective on who they hire and not backfill all open positions," but they will need to offer attractive compensation to attract and retain the workers they need.
The stall in disinflation in the first quarter 2024 seems to have given way to less upward price pressure, in part because of falling consumer demand. The report said,"Prices increased at a modest pace overall, with a couple Districts noting only slight increases. While consumer spending was generally reported as showing little to no change almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals."
When the FOMC next meets on July 30-31, it will consider the anecdotal evidence about the US economy as well as the hard numbers from the data reports. Broadly, it looks like growth continues to be modest but below the 1.8 percent increase in GDP in the FOMC's longer-run forecast, that the rebalancing in the labor market is about done, and that disinflation has resumed and further progress is being made to reach the Fed's 2 percent inflation objective. It is probably not enough for the FOMC to deliver a rate cut at the upcoming meeting, but it is enough to signal that policymakers are near the"greater confidence" that Chair Powell has said they are looking for.
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
