It's as interesting as it sounds...just kidding. The Federal Reserve's Beige Book is actually quite an interesting read for those who would like to learn about the economic health of the United States through each of the twelve districts. While the full document may be a stretch, it's actually quite neat to read the one page summaries, for cities like New York, Boston, Chicago and San Francisco.
For today's edition of Macro Mondays, I'll give you a brief look into the wonder world of the Fed's Beige Book with a little help from Investopedia and Bloomberg's Economic Calendar. Enjoy and I hope you're excited for another week of fun content! ALSO check out the fun video below from RT on the Beige Book.
What is the 'Federal Reserve's Beige Book'?
This is a commonly used name for the Fed report called the Summary of Commentary on Current Economic Conditions by Federal Reserve District. It is published just before the Federal Open Market Committee (FOMC) meeting on interest rates and is used to inform the members on changes in the economy since the last meeting. (Investopedia)
Why should investors care?
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. (Bloomberg)
What does the latest report look like?
A tight labor market is once again the call from the Beige Book which in January and February first began to highlight signs of labor shortages. Businesses in most of the Federal Reserve's 12 districts reported difficulty finding not only highly skilled employees but low skilled ones as well. Wage increases, though modest, are broadening which is the same description for input costs. Pass through of inflation isn't being cited with selling prices still lagging costs.
Labor descriptions aside, this report is once again quiet. The outlook is still described as positive and economic growth as modest to moderate. One theme is uncertainty over government policy especially trade policy which, together with the strong dollar, are described as headwinds for the factory sector. Punctuating the economic assessment is consumer spending which is once again described as soft.
The Beige Book supports the recent run of economic data that, outside of employment, have been mostly flat especially retail and consumer spending and also manufacturing production. The possibility of a rate hike is, at least in theory, alive for every meeting but the outlook for the May 1 & 2 appears to be a pass. Today's report was compiled for the meeting by the Richmond Fed with a response cutoff date of April 10. (Bloomberg)
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