Highlights
The tone of the Beige Book suggests economic activity across the 12 Fed districts is slightly less positive for the period from early January through mid-February than in the prior report. The report shows slight to moderate growth in seven districts (Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas), essentially unchanged conditions in two (Boston and St. Louis), and slight contraction in three (New York, Minneapolis, and San Francisco). Current conditions are seen as mildly expansionary overall. The report said, Economic expectations were optimistic, with most Districts expecting slight to moderate growth in the coming months. However, that compilation about economic conditions is from reports prior to February 23. The effect of more recent geopolitical developments is as yet unknown.
The FOMC will assess the contents of the Beige Book at the upcoming meeting on March 17-18.
On the maximum employment side of the dual mandate, stability in labor markets and modest increases in wages for talent in select areas are positives for the risks to the labor market at a time of uncertainty. However, some of the upward impetus for worker compensation comes from higher insurance costs and may not result in actual increases in earnings.
On the price stability side of the dual mandate, most districts said price increases are moderate. The report said, Many Districts reported that costs rose across several nonlabor inputs, including insurance, utilities and energy, and metals and other raw materials. Nine Districts mentioned that tariffs contributed to increased costs. Some firms continued to pass tariff-related cost increases through to their customers, and others began to do so after having absorbed previous increases. A majority of FOMC participants may continue to be cautious about when the inflationary pressures from tariffs will abate. Moreover, if services price inflation is picking up again or contributing less to the outlook for disinflation, policymakers may be reluctant to cut rates. This could be especially true of the recent run up in energy prices looks to last longer than a few weeks.
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