Highlights
The Fed's beige book issued on October 23 and compiled with data available through October 11 presents an essentially unchanged picture of the US economy across the 12 district banks from the previous report. The anecdotal evidence suggests that the economy is treading water. Half of the districts reported conditions that were neither expanding or contracting (Boston, New York, Cleveland, St. Louis, Kansas City, and San Francisco). Three reported expansion that was slight or modest (Richmond, Chicago, and Dallas) and three said activity decreased slightly (Philadelphia, Atlanta, and Minneapolis).
Activity by sector is mixed as consumers and businesses navigate a period of uncertainty in regard to the outlook for interest rates and impacts from labor disputes and catastrophic storm damage. However, the reported noted,"Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook."
When the FOMC meets on November 6-7 (Wednesday-Thursday to accommodate Election Day on November 5), it will probably find no reason not to cut the fed funds target rate by 25 basis points after the aggressive 50 basis point cut on September 18. However, it is also likely to emphasize that decisions are on a meeting-by-meeting basis and will avoid signaling another rate cut at the December 17-18 meeting.
At the moment, the maximum employment side of the Fed's dual mandate looks to be in good shape since the prior report. The current report said,"On balance, employment increased slightly . with more than half of the Districts reporting slight or modest growth and the remaining Districts reporting little or no change". Churn in the labor market has settled along with lower demand for workers in a cooling labor market, and businesses are seeing better availability of workers for open spots."Wages generally continued to rise at a modest to moderate pace," the report said, with upward pressure on wages easing along with the labor market. Nonetheless, some"skilled trades or in remote areas" are having difficulty in finding workers. Layoff activity remains"limited".
On the price stability side of the dual mandate,"Inflation continued to moderate with selling prices reportedly increasing at a slight or modest pace in most Districts," the report said."Input prices generally rose moderately." There are a few sources of upward price pressures. Among foods eggs and dairy increase"sharply". Rents are"steady or down slightly" although home prices"edged up in many Districts." Insurance and healthcare costs are also on the rise. Fed policymakers will remain cautious on the inflation outlook.
Activity by sector is mixed as consumers and businesses navigate a period of uncertainty in regard to the outlook for interest rates and impacts from labor disputes and catastrophic storm damage. However, the reported noted,"Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook."
When the FOMC meets on November 6-7 (Wednesday-Thursday to accommodate Election Day on November 5), it will probably find no reason not to cut the fed funds target rate by 25 basis points after the aggressive 50 basis point cut on September 18. However, it is also likely to emphasize that decisions are on a meeting-by-meeting basis and will avoid signaling another rate cut at the December 17-18 meeting.
At the moment, the maximum employment side of the Fed's dual mandate looks to be in good shape since the prior report. The current report said,"On balance, employment increased slightly . with more than half of the Districts reporting slight or modest growth and the remaining Districts reporting little or no change". Churn in the labor market has settled along with lower demand for workers in a cooling labor market, and businesses are seeing better availability of workers for open spots."Wages generally continued to rise at a modest to moderate pace," the report said, with upward pressure on wages easing along with the labor market. Nonetheless, some"skilled trades or in remote areas" are having difficulty in finding workers. Layoff activity remains"limited".
On the price stability side of the dual mandate,"Inflation continued to moderate with selling prices reportedly increasing at a slight or modest pace in most Districts," the report said."Input prices generally rose moderately." There are a few sources of upward price pressures. Among foods eggs and dairy increase"sharply". Rents are"steady or down slightly" although home prices"edged up in many Districts." Insurance and healthcare costs are also on the rise. Fed policymakers will remain cautious on the inflation outlook.
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
