The Federal Reserve released its Beige Book survey just as “Street Signs” began today. The survey showed the U.S. economy entered 2007 with moderate growth – including moderate wage gains and price increases. The bottom line was that the Fed appeared to still be “upbeat on inflation,” according to CNBC’s Steve Liesman (meaning it's not overly worried about inflation). “Street Signs” had instant analysis of the beige book release with Mike England of Action Economics and Joseph LaVorgna of Deutsche Bank. The pair discussed the survey with Erin Burnett.
FYI: The "Beige Book" is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources.
Okay--now for what that all means. LaVorgna noted how little things seem to have changed from the last Beige Book release. The Fed’s characterization of the economy--showing mixed to moderate growth is “very much of the Goldilocks mindset” and is evidence that the Federal Open Market Committee has no short-term plans to hike rates.
England agreed – as long as the Fed is relatively "positive" on inflation (again--not overly concerned inflation would rise and overheat the economy), that spells good news for the U.S. stock market. So while some worry that the dive oil is taking now could hurt equities, LaVorgna notes that the "ongoing" bull run really began back in July – when oil was peaking at $78 per barrel. He says if oil stays down where it is, it will lead to increased economic growth--thus low crude prices don't necessarily bring on low stock prices.
Today’s Beige Book is reassuring that the Fed doesn’t appear to have a rate hike ready – at least not yet, says LaVorgna--adding that the housing market is what’s likely to drive the next rate cut. So while manufacturing continues expansion in most districts, once the housing sector starts to see some of that growth then the Fed could change its outlook.
“The economy has a nice glide path” which will continue as long as the Fed pauses on its inflation targets, England says. The next Fed meeting is scheduled for January 30 and 31.