Fed Beige Book Inflation Take Raises Odds for March 21 Interest Rate Increase

The Federal Reserve’s Beige Book economic report, based on anecdotal information collected by the 12 regional Federal Reserve banks, shows that a tight U.S. labor market is generating wage increases in most of the country and is leading to “moderate inflation.” Prices increased in all regions, the report concluded.

The report apparently has influenced some of the Federal Reserve’s most dovish members to support more rather than fewer interest rate increases in 2018. For example, Atlanta Fed President Raphael Bostic, said he has upgraded his own projection to three hikes this year from two. Fed Governor Lael Brainard, who has argued for caution on raising interest rates, said late Tuesday that the economic outlook is improving and signaled support for continued gradual rate increases.

The CME FedWatch tool puts the odds of an interest rate increase at the March 21 meeting at 87.4%. History suggests that at anything above 65% an interest rate move is just about certain unless the Fed begins to talk down expectations in the weeks before a meeting.

Unemployment remained at 4.1% in January for the fourth straight month, the lowest level since 2000. Wages, however, haven’t risen as much as expected with year over year gains in hourly earnings up by an average of 2.6% in the four most recent quarterly reports.

The report was compiled before President Donald Trump proposed a 25% tariff on imported steel and a 10% tariff on imported aluminum.