If our assessment of the Beige Book is reflected in the forthcoming FOMC meeting the current state of policy will be judged ‘broadly balanced’. For those anticipating hints of an imminent shift to easier policy the coming meeting may prove a case of ‘delayed gratification’.
Overall sentiment on the US economy reflected in the Beige Book (using customised dictionary) has slipped compared to the October release, suggesting a decline in optimism about the US economy. There is, as yet, little indication of concern for the economy – the most recent score reflects a balance between positive and negative values reflected in the text of the report. The horizontal dotted white line in the following chart shows the latest signal, based on the Beige Book released a week ago (marginally below the zero line). It is worth noting that policy stability has been associated with a net positive score (yellow) over the past fifteen years and any sustained move into negative (red) has been accompanied by significant policy easing.
A slightly different approach analyses the occurrence in the Beige Book of positive and negative terms as separate series. Accordingly to this approach, the latest Beige Book showed a noticeable decline in positive terms about the US economy, and a slight increase in negative terms compared to the October release. Negative terms very slightly outscored positive terms – similar to the sentiment index above. While the direction of travel seems to be towards economic slowdown, driven by reduced optimism, rather than increased pessimism.
In the all-important assessment of inflation, the overall score dropped well below the score of 2 previously judged to reflect widespread concern for price rises – the breach of which level in March 2022 signalled a dramatic switch in Fed policy. The inflation score is now back to levels last seen in early 2021, when All-Items CPI stood at 1.4%. On inflation, the Beige Book suggests the Fed’s mission may be accomplished – reducing a bias to higher rates.
However, there is, as yet, no pressing need for adjustment to policy, nor much indication that conditions are undermining the ‘maximum employment’ element of the Fed’s mandate. The series measuring concern for employment/unemployment actually declined again in November Beige Book, suggesting reduced concern about the job market.
Overall, while the signs are growing that policy rates may have peaked, there is no strong signal of a need for easing in the near future.