Market CommentariesThe Beige Book Is Reassuring

The Federal Reserve issued its Beige Book economic summation a little earlier this afternoon, and there were no surprises. In fact, the stock market, up strongly at that time, continued to hold its impressive gains following the mid-afternoon issuance.

Specifically, the report, which will be used as a guide by the Fed in formulating economic policy for its next FOMC meeting on October 31st and November 1st, intoned that the nation's economy was moving along at a modest to moderate pace in all 12 of the lead bank's Districts. That represented some improvement from past Beige Book compilations, in which the business advance had been viewed as more selectively based. 

This advance, by market, took in manufacturing, non-financial services, retail activity, car sales, tourism, and residential building. Also, while labor markets were described as tight, the majority of Districts reported only modest-to-moderate wage pressures. Hence, inflation remained under control.

Given this most satisfactory backdrop, and even with the low rate of inflation, our thinking is that the Federal Reserve will increase borrowing costs at its mid-December FOMC gathering. As before, we sense that the late-October confab will result in no interest rate adjustment. Such a timetable should be reassuring to equity investors, as it would again suggest that the bank has no place to become overly aggressive in restricting the economic upturn.