South-Westerns' Economic News Summaries
What's in the Wizard's Big Beige Book?
Topic Productivity and Growth
Key Words Economic Growth, Federal Reserve, and the Beige Book

News Story

Consumer spending and business spending continue to grow, helping to push employment and economic growth at a moderate pace. This news comes from the recent publication of the Fed's beige book report - a regional survey conducted by the 12 Federal Reserve district banks.

Economic pressure to increase wages remains low, even as employment gains are being made in most places across the country. The latest Fed report also noted that the housing market also cooled somewhat.

Federal Reserve policy makers continually watch the jobs market and factory expansion to determine the potential inflationary impact on the economy as a whole. They use these signals to determine how many more times to raise the discount rate and to set the suggested target for the federal funds rate - the rate banks charge each other for overnight reserve loans. The Fed has raised this benchmark rate 14 times since June of 2004. Some analysts now expect a final rate increase from the Fed at its May 10th FOMC meeting.

"The report is "fairly positive on growth and fairly positive on inflation being contained," said Robert Mellman, an economist at J.P. Morgan Chase in New York. Commonly known as the Beige Book, this report is published eight times per year by the Fed. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. A designated Federal Reserve Bank, on a rotating basis, prepared an overall summary of the twelve district reports eight times a year-at each FOMC meeting.

Questions
1.

Define the federal funds rate and compare it to the discount rate. Which is lower? Why?

2. Visit http://www.federalreserve.gov/Fomc/BeigeBook/2006 and report on what happened to consumer spending and tourism in the March 15th,
Source Bloomberg News, "Economy Growing at Moderate Pace in Most of U.S., Fed Says", The New York Times Online, March 16, 2006.
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