Beige Book and Fed Speak

The Beige Book is a summary of regional economic activity from the twelve Federal Reserve districts. The previous Beige Book described the pace of expansion as "modest to moderate" in most districts and noted stronger consumer spending and manufacturing activity in almost all districts. This report was little changed with 2 fewer districts reporting “moderate” growth, both downshifting to “modest,” but every district noted increased consumer spending activity.  In addition to the release of this report, which seems unlikely to change the Fed’s current stance, several fed presidents gave speeches this week and/or conducted interviews and Chair Yellen testified in front of Congress.  St. Louis Fed President James Bullard and Dallas Fed President Richard Fischer, in separate speeches, both acknowledged the accelerating improvement in the labor market and indicated that from their perspectives the Fed might need to pull forward the timing of the first rate hike which is currently expected to happen sometime in mid-2015.  Meanwhile, Chicago Fed president Charles Evans, in an interview with the Wall Street Journal, indicated that he felt continued monetary support into late 2015 or even 2016 would be warranted unless inflation measures started to pick up more.  Yellen’s testimony was also generally dovish and indicated her anticipation of ongoing accommodative monetary policy, though she too acknowledged an increase in the rate of improvement in the labor market could warrant a change in the Fed’s stance.  All in all it seems that although the Fed continues to focus on the data and, though incrementally less dovish than earlier in the year, they have not materially changed their expectations for the first rate hike despite the ongoing improvement in labor and economic measures and convergence of these measure toward the Fed’s own stated targets.  We continue to expect the data to improve and for the market to take notice over the next couple of quarters possibly forcing the Fed’s hand on tightening if the Fed is too slow to react.