Fed Beige Book: Economy tipping toward growth

In its Beige Book, the Fed sees US economy making 'modest improvements.'

Has the US economy finally reached its tipping point?

The end of a recession merely means that the economy has stopped contracting. But in its latest survey of its regions – known as the Beige Book and released Wednesday – the Federal Reserve now sees evidence of growth.

For example, the Fed noted "modest improvements" in many sectors of the economy for the first time in more than a year.

Moreover, the positive descriptions in the October report – words like gain, pickup, uptick – outnumbered negative terms like decline, downward pressure, and soft by 66 to 59. In September, those descriptions were in balance – 37 positive to 38 negative.

That's good news. It also means that the prospects for an interest-rate hike have become more concrete.

"The Fed is telling us that they'll be raising rates," says John Canally, an economist with LPL Financial, based in Boston. Traditionally, the central bank has waited until unemployment has peaked before taking action. Theoretically, that could happen in the first quarter of 2010, he adds, but he thinks it won't happen until the third quarter.

He's also more bullish on the recovery than many forecasters.

Other economists are more skeptical about the current growth because they worry it's not sustainable.

"Where there's been an improvement, it's where the government has been subsidizing," says Doug Roberts, author of "Follow the Fed to Investment Success" and chief investment strategist for Channel Capital Research in Shrewsbury, N.J. "They're the lender and spender of last resort."

That's how many tipping points feel – positive and negative forces are in nearly equal balance and it's hard to tell which way it's going. Then something comes along that decides the outcome.

This time it could be positive.
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