Fed's Beige Book - Modest Reasons to Keep Raising Rates

The Federal Reserve's favorite adjectives, liberally deployed, mean the central bank will maintain its normalization policy until it meets resistance from a slowing economy.

Wednesday's Beige Book economic assessment, a collection of anecdotal information prepared by the 12 Federal Reserve Districts for the November 7th and 8th FOMC meeting, portrayed an expanding American economy suffering labor shortages but continuing on one of the longest post-war expansions without evident strain.

Economic growth was characterized as moderate in a majority of Fed Districts in Wednesday’s report. In the last report on September 12th it had been both moderate and modest. Manufacturing expansion was moderate in both reports and consumer spending grew at a modest pace in each. Wage growth was modest or moderate despite tight labor markets and shortages of skilled workers that in some places were restraining growth.  Prices also continued to rise at a modest to moderate pace in most Districts.

The continuity between the reports was their most arresting feature. Clearly this report could not be used to support a change or even a tempering of current rate policy.

The Federal Reserve has been candid that its rational for tightening rates is not from a fear of an overheating economy or rising inflation. The governors see a need and desire to ‘normalize’ rates in the context of a future recession. That project remains firmly on track.