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Fed Beige Book flags intensifying price pressures

The US Federal Reserve (Fed) released its Beige Book, a qualitative report that summarises regional and national economic conditions and is used by the Federal Open Market Committee (FOMC) at each of its eight monetary policy meetings.

The Beige Book stated that “most districts” saw little change in overall employment levels and that, since the previous Beige Book release, two of the twelve districts reported moderate growth in economic activity.

Despite this, the book said that expectations “tend to be for slight growth.” Three districts reported robust price growth, while three of eight districts noted intensifying input price pressures.

Key highlights:

Most districts described little or no net change in overall employment levels.

Since the prior Beige Book, two of the twelve Federal Reserve districts reported moderate growth in economic activity.

However, expectations tend to be for slight growth, weighted toward manufacturing and burdened by persistent uncertainties.

Three districts characterized overall price growth as robust, while eight noted that growth was moderate—and three of the eight noted that input price pressures were intensifying, if not already growing robustly.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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