The Federal Reserve Bank of Kansas City released its Beige Book Report detailing economic activity among the twelve Federal Reserve Districts across the country. The pace of economic activity was quite sluggish throughout much of the country. At the same time, there have been hawkish comments recently by several Fed governors. This leads us to the question of the possibility of a Fed rate increase on the horizon.

However, one must remember that hawkish talk is quite different from hawkish action. As I have said in my book, Follow the Fed to Investment Success, "watch what the Fed does not what it says."

The Fed has given no indication that an imminent raise in interest rates is forthcoming. There have simply been hawkish comments, which are an incredibly inexpensive means of maintaining its inflation-fighting credentials. However, every time market turmoil arises, the Fed adopts a more conciliatory tone.

The recent reductions in the Fed Funds Target Rate and the Discount Rate have been driven by severe economic stress on the economy. The Beige Book Report indicates that this stress is not receding to any significant degree. The last thing that the Fed wants is to raise interest rates and then be forced to lower them. This would cause severe damage to Fed credibility.

Although there are inflationary pressures, they are largely confined to input prices. It is still quite uncertain as to how much of this can be successfully passed on to customers. In addition, wage pressures are minimal. Thus, the inflation picture is quite mixed.

In addition, the primary driver of inflation has been the rise in oil prices. The recent drop in these prices should provide some relief for the Fed at least in the near term.

Thus, the Beige Book Report seems to indicate that the hawkish talk remains just that and not a warning about an imminent rise in rates by the Fed.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, and is the author of Follow the Fed® to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.