Fed’s August 2012 Beige Book Say’s Unemployment “Holding Steady or Growing Only Slightly” – No Easing Is Bad Signaling:
The Fed’s Beige Book for the month of August 2012 was unusually weak. Although some of the data showed strength compared to the prior Beige Book, most of the trends haven’t changed and the all-important jobs numbers haven’t budged. The most important data point that has a direct impact on the Fed’s dual mandate is related to jobs growth which the Beige Book that measures activity up through August 20, 2012 showed was “holding steady or growing only slightly”. The Fed should have moved already and has been behind the curve in anticipating jobs growth.
No QE3 Equals Bad Signaling
The Fed has added a high level of confusion and uncertainty to the market with an almost two year long anticipation of QE3. The Fed works best when it signals actions and gets the market to move without the FOMC actually having to do anything. Expectations of QE3 have reached a high level of probability and most market participants believe the Fed will act sooner rather than later because they have basically no time left before the election.
Last week reports the Fed could move hit the markets when meeting minutes showed the central bank would act “fairly soon without evidence of substantial and sustainable” increase in the economic recovery. Today’s Beige Book shows this has not occurred and we have argued for weeks that 42 consecutive months of unemployment with low inflation puts the Fed behind the curve. No QE3 would be another overhang for the market and investors could be disappointed if strong easing doesn’t occur at Jackson Hole.