The economy is doing all right, Beige Book, Fed presidents say

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A report from the Federal Reserve reported modest economic growth, a characterization two Federal Reserve Bank presidents seemed to agree with, in their own words.

Federal Reserve Bank of Dallas President Robert Kaplan, in a televised interview, said he saw a good year ahead, while Federal Reserve Bank of Minneapolis President Neel Kashkari said while not booming, the economy is “decent.”

The economy expanded at a modest pace at the end of 2019, with employment gaining and prices also rising modestly, according to the Fed’s Beige Book report released Wednesday.

Although modest overall, the Dallas and Richmond districts reported better-than-average growth, and Philadelphia, St. Louis, and Kansas City were below average.

Consumer spending, which has fueled the expansion, “grew at a modest to moderate pace, with a number of districts noting some pickup from the prior reporting period,” the report said.

Holiday sales were termed “solid” with some districts seeing a “growing importance of online shopping.”

Manufacturing, in general, was flat.

Most districts said “employment was steady to rising modestly,” and “labor markets remained tight throughout the nation.” Labor shortages were reported throughout the country, but wages grew modestly or moderately in most districts, much like in the prior report.

“Prices continued to rise at a modest pace during the reporting period, as did input costs,” the report noted. “A number of districts reported that retail selling prices rose at a slightly faster, but still subdued, pace.”

Only a few districts said some businesses, generally those in retail or construction, were able to pass on tariff costs.

The year appears to be shaping up as a good one for the U.S. economy, according to Dallas Fed President Kaplan, as global growth, manufacturing and business fixed investment, while “sluggish” are stabilizing.

The signing of a phase one trade deal with China also “creates some stability,” he said in a Bloomberg television interview, but “doesn’t remove trade issues going forward.”

While the belief is the bar is higher for the Fed to raise rates, Kaplan said, “I don’t know if I agree with that.”

On the Fed’s increasing balance sheet, Kaplan warned, “We need to limit and temper the growth in the Fed balance sheet,” since “it’s having some affect on risk assets.” And while he maintains the Fed did “what we needed to do,” he emphasized a need for a plan “for winding this down.”

Separately, Minneapolis Fed President Kashkari called the current economy “decent.” In a conversation livestreamed by the Fed, he said the threat of recession was decreased by the Fed’s three easings last year. The Fed “raised interest rates too aggressively [the year before] and maybe beyond what was necessary,” he said. The rate cuts corrected that.

Producer prices rose less than expected in December, suggesting inflation remains in check. The Labor Department said Wednesday both the producer price index and the core inched up 0.1%, after the headline number was flat in November and the core slid 0.2%.

Economists polled by IFR Markets expected each number to grow by 0.2%.

Year-over-year PPI gained 1.3% and the core was up 1.1%, with economists expecting 1.3% gains for each.

Empire State Manufacturing Survey
The Empire State Manufacturing Survey showed some growth in manufacturing activity in the region, while optimism was termed “subdued.”

The general business conditions index rose to 4.8 in January from 3.3. in December, the Federal Reserve Bank of New York said Wednesday. Economists expected a 3.5 reading. The six months from now general business conditions index slipped to 23.6 from 26.1.

Orders climbed, while the shipments index showed a “modest” gain.

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Monetary policy Economic indicators Robert Kaplan Neel Kashkari Federal Reserve Federal Reserve Bank of Minneapolis Federal Reserve Bank of Dallas