Fed Beige Book Says No Need For Stimulus

The Fed’s Beige Book just came out and the summary statement was “economic activity continued to expand” for the period of April 8th to May 20th.

Compare that to summary line from the November 29th, 2023 release which covered the period of October 6th-November 17th when the Beige Book said “economic activity slowed.” 

Recall, back then, the tightening of financial conditions that had occurred from August to October’s bond market selloff actually was beginning to bite the economy and was doing some of the work for the Fed to assist bringing inflation back down to target. This activity slowdown was part of the reason the Fed got onboard with the dovish policy pivot that started at the early November Fed meeting and Treasury QRA release but was cemented at the December FOMC meeting when the Fed didn’t deliver the last rate hike.

As things stand right now, the economy continues to expand and is not showing similar concerns on the growth front like it was last fall, even after we have seen some move higher in interest rates again in recent weeks.

As we approach the June Fed meeting, I think we are going to continue to trade with this backdrop in mind as the Fed is going to be forced into continuing to remove policy accommodation (interest rate cuts) from its forecast in the Dot plot, both for 2024 and probably 2025 as well. 

I think that creates a potential air pocket for risk in the coming weeks as markets realize the timeline to getting more Fed accommodation is elongating again while the economic data has begun to stall out.

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