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Federal Reserve Beige Book Suggests 'Modest to Moderate' Growth

Federal Reserve Beige Book Suggests 'Modest to Moderate' Growth

Christopher Vecchio, CFA, Tzu-Wen Chen,

THE TAKEAWAY: [U.S. Federal Reserve Beige Book Released] > [Modest to Moderate Economic Growth, Housing Market Sluggish] > [USDOLLAR Index Bullish]

The latest release of the Federal Reserve’s Beige Book suggested modest to moderate economic growth, with strong retail sales and increased demand for professional services indicating “ongoing improvement in economic conditions”. Upward wage pressures were modest overall, while hiring remained limited. This falls in line with recent labor market readings, which have shown that the participation rate among Americans has dropped off and many seeking employment are taking work that they would otherwise be overqualified for, if the economy was full-recovered.

According to the book, most districts reported increasing consumer confidence and spending, with a noticeable gain in holiday retail sales over last year’s season, and a significant pick-up in the auto sector in most districts. The manufacturing and agricultural sectors continued to expand, as did demand for nonfinancial services. Meanwhile, residential real estate activity remained slow, while commercial real estate showed some signs of ongoing improvement in several districts.

U.S. Dollar 1-minute Chart: January 11, 2012

Federal_Reserve_Beige_Book_Suggests_Modest_to_Moderate_Growth_body_Picture_7.png, Federal Reserve Beige Book Suggests 'Modest to Moderate' Growth

Chart created using Strategy Trader – Prepared by Tzu-Wen Chen

In terms of price action, the release proved slightly bullish for the U.S. Dollar across the board, with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) edging up only slightly after the release before pulling back. The majority of the support for the U.S. Dollar came on a weaker British Pound and a weaker Euro, as the Australian Dollar and Japanese Yen barely responded to the release.

Overall, the Fed's Beige Book offers some encouraging signs about the direction of the economy, to the extent that the economy may no longer need another round of quantitative easing, similar in scale to the second round that took place from November 2010 to June 2011. However, given the outlook of the housing sector, which remains "sluggish," it remains to be seen if the Fed unveils a smaller stimulus package to purchase mortgage backed securities, similar to the first instance of quantitative easing.

--- Written by Christopher Vecchio, Currency Analyst and Tzu-Wen Chen, DailyFX Research

To contact Christopher Vecchio, e-mail

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