Highlights
The Beige Book for the period between early January and late February shows that economic activity went from at least some growth in economic activity in all 12 districts in the prior report to only four in expansion (Boston, Richmond, Atlanta, and Dallas). Six districts indicated conditions were about unchanged (New York, Cleveland, Chicago, St. Louis, Minneapolis, and Kansas City) and two had a slight decline (Philadelphia and San Francisco). Most descriptions of activity centered around the neutral mark with only slight growth, no growth, or slight contraction. The exceptions were for modest to moderate growth in Richmond, Atlanta, and Dallas.
Although it is only one report, the swift decline to only 1/3 of districts reporting any growth is a warning sign of a possible recession. The bitter cold weather in January may have contributed to slowing in activity as well as if businesses have paused to assess the near future in light of big changes in federal government tax and fiscal policy along with massive layoffs in the federal workforce and a changing outlook for regulation and enforcement. Given that the Beige Book noted, Overall expectations for economic activity over the coming months were slightly optimistic, it is possible that a one-time stall in activity could give way to firmer growth.
The FOMC next meets on March 18-19. Fed policymakers will carefully parse the anecdotal evidence about the economy and how to best achieve the Fed's dual mandate within the available information.
For the moment, the maximum employment side seems to be met. The Beige Book said, Employment nudged slightly higher on balance, with four Districts reporting a slight increase, seven reporting no change, and one reporting a slight decline. However, conditions in the labor market appear to have eased from the prior report with generally more labor available and demand less except in some targeted sectors or occupations. The Beige Book said, Contacts in multiple Districts said rising uncertainty over immigration and other matters was influencing current and future labor demand. Upward pressure on wages is easing, although still modest-to-moderate.
The mandate for price stability continues to be challenged by inflation. The Beige Book said, Prices increased moderately in most Districts, but several Districts reported an uptick in the pace of increase relative to the previous reporting period. Upward pressure on input prices are generally greater than sales price pressures, particularly in manufacturing and construction. In particular, Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread. Firms in multiple Districts noted difficulty passing input costs on to customers. However, contacts in most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.
The FOMC is likely to leave the fed funds target rate range at 4.25-4.50 percent at the next meeting and cite elevated inflation relative to the Fed's 2 percent objective. However, risks to the outlook will less balanced in choosing between fighting inflation and supporting a strong labor market.
Although it is only one report, the swift decline to only 1/3 of districts reporting any growth is a warning sign of a possible recession. The bitter cold weather in January may have contributed to slowing in activity as well as if businesses have paused to assess the near future in light of big changes in federal government tax and fiscal policy along with massive layoffs in the federal workforce and a changing outlook for regulation and enforcement. Given that the Beige Book noted, Overall expectations for economic activity over the coming months were slightly optimistic, it is possible that a one-time stall in activity could give way to firmer growth.
The FOMC next meets on March 18-19. Fed policymakers will carefully parse the anecdotal evidence about the economy and how to best achieve the Fed's dual mandate within the available information.
For the moment, the maximum employment side seems to be met. The Beige Book said, Employment nudged slightly higher on balance, with four Districts reporting a slight increase, seven reporting no change, and one reporting a slight decline. However, conditions in the labor market appear to have eased from the prior report with generally more labor available and demand less except in some targeted sectors or occupations. The Beige Book said, Contacts in multiple Districts said rising uncertainty over immigration and other matters was influencing current and future labor demand. Upward pressure on wages is easing, although still modest-to-moderate.
The mandate for price stability continues to be challenged by inflation. The Beige Book said, Prices increased moderately in most Districts, but several Districts reported an uptick in the pace of increase relative to the previous reporting period. Upward pressure on input prices are generally greater than sales price pressures, particularly in manufacturing and construction. In particular, Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread. Firms in multiple Districts noted difficulty passing input costs on to customers. However, contacts in most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.
The FOMC is likely to leave the fed funds target rate range at 4.25-4.50 percent at the next meeting and cite elevated inflation relative to the Fed's 2 percent objective. However, risks to the outlook will less balanced in choosing between fighting inflation and supporting a strong labor market.
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
